Mathematics for FinanceMTP Sep 24 - IQuestion 1589 of 512
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If the nominal rate of growth is 17%\displaystyle 17\% and inflation is 9%\displaystyle 9\% for the five years. Let P\displaystyle P be the Gross Domestic Product (GDP) amount at the present year then the projected real GDP after 6\displaystyle 6 years is

Options

A1.587P\displaystyle 1.587P
B1.921P\displaystyle 1.921P
C1.403P\displaystyle 1.403P
D2.51P\displaystyle 2.51P
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Correct Answer

✅ Option a — 1.587P\displaystyle 1.587P

All Options:

  • A1.587P\displaystyle 1.587P
  • B1.921P\displaystyle 1.921P
  • C1.403P\displaystyle 1.403P
  • D2.51P\displaystyle 2.51P

Detailed Solution & Explanation

The nominal rate of growth is 17%\displaystyle 17\% and inflation is 9%\displaystyle 9\%. The projected real GDP after 6\displaystyle 6 years can be calculated by adjusting the nominal GDP growth for inflation. Using the simple real growth rate approximation (17%−9%=8%\displaystyle 17\% - 9\% = 8\%): Real GDP6=P(1+0.08)6=P(1.08)6≈1.587P\text{Real GDP}_6 = P (1 + 0.08)^6 = P (1.08)^6 \approx 1.587 P Hence, **Option A** is the correct answer.

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