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Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985

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BuyFindarrow_forward

Brief Principles of Macroeconomics...

8th Edition
N. Gregory Mankiw
ISBN: 9781337091985
Textbook Problem

If the interest rate is 10 percent, then the future value in 2 years of $100 today is

a. $80.

b. $83.

c. $120.

d. $121.

To determine

Calculation of future value of money.

Explanation

Option (d):

The future value can be calculated as follows:

Future value=Present value×(1+Interest)Time period121=100×(1+0.1)2121=100×(1.21)121=121

Future value is $121. Thus, the option “d” is correct.

Option (a):

The future value can be calculated as follows:

Future value=Present value×(1+Interest)Time period80=100×(1+0.1)280=100×(1.21)80<121

The calculated value is greater than the 80. Thus, the option “a” is incorrect

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