If a country has $100 million of debt, the interest rate on the debt is 10%, and the country does not make any payments on the debt, then at the end of year 3, the debt amount would be:
A) $121 million.
B) $110 million.
C) $133.1 million.
D) $100 million.

Question

Quizplus · Accepted Answer

If the country does not make any payments on the debt, the interest will accrue over time. 
At the end of year 1, the debt amount would be $110 million (original debt amount of $100 million + 10% interest). 
At the end of year 2, the debt amount would be $121 million [(original debt amount + 10% interest for year 1) + 10% interest for year 2].
At the end of year 3, the debt amount would be $133.1 million [($121 million + 10% interest for year 2) + 10% interest for year 3]. 
Therefore, the correct answer is C.

If a Country Has $100 Million of Debt, the Interest