1) The price of Gas is \$3.39 in December 2011 and it was \$4.10 in December 2008.  What is the average inflation rate for gas over these three years?
a)  6.14%
b)  5.77%
c)   -6.14%
d)   -5.77%

2) If you anticipate an annual inflation rate of 3.2% in the current economy, and can make an investment in a stock that is expected to appreciate at 12.0% compounded annually. What would be your inflation-free rate of return for this investment (pick the closest answer)?
a) 8.30%
b) 8.50%
c) 9.45%
d) 6.37%

3) A proposed project that requires an investment of \$13,278 (year 0) is expected to generate a series of 4 equal annual net income of \$6,000 each in constant dollars. Assuming the average inflation rate of 3.5%, and the market interest rate of 10% during this inflationary period, what is the equivalent net present worth (NPW) in actual dollars for this project?
a) \$5,658
b) \$7,380
c) \$9,390
d) \$7,277

4) Convert the Actual Dollar payment of \$1,850 to be made 12 years from now into Constant Dollars to be made 12 years from now (given the inflation rate f = 3.5%, inflation-free interest rate i' = 7.5% annual).
a) \$777
b) \$514
c) \$2,214
d) \$1,224

• 5 years ago
• 