Suppose that a country has external wealth of $1 billion in 2014. What is the future value of this external wealth at the end of 2016, assuming a world interest rate of 10% per annum and no additions or subtractions to external wealth from trade balance surpluses or deficits during the period?
A) $1.1 billion
B) $1.2 billion
C) $1.21 billion
D) $0.812 billion

Question

Quizplus · Accepted Answer

Using the future value formula FV = PV*(1+r)^n, where PV is the present value, r is the interest rate, and n is the number of periods, we can calculate the future value of the external wealth. In this case, PV = $1 billion, r = 0.10, and n = 2 (since we are calculating the future value at the end of 2016, which is two years after 2014). Plugging in these values, we get:
FV = $1 billion * (1 + 0.10)^2
FV = $1.21 billion
Therefore, the best choice is C.

Suppose That a Country Has External Wealth of $1 Billion