Suppose that the current price of oil is $60 a barrel and the interest rate is 3%.If the National Petroleum company extracts and sells its oil at $60 a barrel today and the revenue is invested,what will be its value per barrel at the end of year 2?

Question

Quizplus · Accepted Answer

To calculate the value per barrel at the end of year 2, we need to account for the interest earned on the revenue from selling the oil. 
Assuming the interest rate of 3% is compounded annually, the value of $60 after year 1 will be:
$60 x 1.03 = $61.80
This amount will earn interest for another year, so:
$61.80 x 1.03 = $63.6
Therefore, the correct choice is (C) $63.6.

Suppose That the Current Price of Oil Is $60 a Barrel