The Interest Rate Is 10% and Will Remain So Forever

question 19

Multiple Choice

The interest rate is 10% and will remain so forever.You do not drink wine but are interested in buying some for investment purposes.Assume that there are no transactions costs or storage costs and that a certain bottle of wine will be worth $44 one year from now, $51 two years from now, and $55 three years from now.After that it turns to worthless vinegar.How much should you be willing to pay for a bottle? (Pick the closest answer.)

• A)$40
• B)$42.15
• C)$47.15
• D)$41.32
• E)$49.30

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Definitions:

International Asset Transactions

The sale, trade, or transfer of ownership rights to either real or financial assets, including currency, across international borders.

Trade Deficits

An economic measure where a country's imports exceed its exports over a certain period, indicating an outflow of domestic currency to foreign markets.

Capital and Financial Account

Components of a country's balance of payments, recording the transactions of assets and liabilities, such as direct investments, portfolio investments, and other investments across borders.

Net Exports

The value of a country's total exports minus the value of its total imports, indicating the balance of trade.