Suppose that the current price of oil is $60 a barrel and the present interest rate is 3%.Further,suppose that the interest rate remains unchanged and no new discoveries of oil are made.If the economist for the National Petroleum company believes that the rate of oil extraction is exactly right,what should be the price for a barrel of oil three years from now?

Question

Quizplus · Accepted Answer

We can use the formula for continuously compounded interest to calculate the future price of oil:
P = Pe^(rt)
where P is the future price, P is the present price, r is the interest rate as a decimal, and t is the time in years.

Using this formula, we get:
P = 60*e^(0.03*3)
P = 60*e^(0.09)
P = 60*1.093
P = $65.5

Therefore, the answer is D) $65.5

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