Inflation Calculation and Real Interest Rates, Lecture notes of Electronics engineering

Download Inflation Calculation and Real Interest Rates and more Lecture notes Electronics engineering in PDF only on Docsity! Name : Shams Mashar Assignment - 05 Id : fa18-beee-0040 Question No : 01 The CPI of a country from 2016 to 2020 is as follows, 2016- 122.5, 2017—129.32, 2018—137.56,2019—143.52, 2020-149.32 Calculate average inflation rate from 2016 to 2020? Answer: As we know that , f = ( F / P )1/n - 1 Data: Where, F = Final CPI = 149.32 P = Present CPI = 122.5 n = number of periods = 4 years f= Average rate of inflation = ? Solution: Putting the values of ‘F’ , ‘P’ and ‘n’ into the above formula we get the value of f, f = ( 149.32 / 122.5 )¼ - 1 f = ( 1.21893)¼ - 1 f = 1.0507 - 1 f = 0.0507 * 100 = 5.07% Answer Q-2 A company is estimating following cash flows for next five years Year Cash Flows 2020 Rs 75,000.00 2021 Rs 95,000.00 2022 Rs 1,10,000.00 2023 Rs 1,15,000.00 2024 Rs 1,22,000.00 If Company is expecting an average inflation of 5.5% in next 5 years what will be the values of cash flows in constant rupees? Answer : Data : average inflation rate = 5.5 % Constant rupees during each period=? Solution : Years Cash Flow In Actual Rupees Conversion at f Cash Flow in Constant Rupees 2020 Rs 75,000.00 (1+0.055)0 Rs 75,000.00 2021 Rs 95,000.00 (1+0.055)-1 Rs 90,047.39 2022 Rs 1,10,000.00 (1+0.055)-2 Rs 98,829.76 2023 Rs 1,15,000.00 (1+0.055)-3 Rs 97,935.57 2024 Rs 1,22,000.00 (1+0.055)-4 Rs 98,480.44 Q-3 If my father was drawing a salary of Rs2500.00 in 1985 what will be its actual value in 2020 if the average rate of inflation during this period has been 6.2% ? Answer: As we know that, Ra = Rc ( 1+f )n