The net investment flow (rate of capital formation) of the giant conglomerate LTF incorporated is projected to be million dollars/year in year t. Find the accruement on the company's capital stock in the second year. Hint: The amount is given by
A) $0.92 million
B) $0.12 million
C) $2.45 million
D) $2.24 million

Question

The net investment flow (rate of capital formation) of the giant conglomerate LTF incorporated is projected to be  million dollars/year in year t. Find the accruement on the company's capital stock in the second year. Hint: The amount is given by 
A) $0.92 million 
B) $0.12 million 
C) $2.45 million 
D) $2.24 million

Quizplus · Accepted Answer

The accruement on the company's capital stock in the second year is given by: 
Rate of capital formation in year t * capital stock at the end of year t-1 
= 11eaa8b1_da88_fd6a_b1b6_5bd65c3bce6b_TB6026_11 * capital stock at the end of year 1 
= 11eaa8b1_da88_fd6a_b1b6_5bd65c3bce6b_TB6026_11 * 1.02 (assuming no depreciation) 
= 11.224 million dollars 
Rounding off to two decimal places, we get $2.24 million, which is option D.

The Net Investment Flow (Rate of Capital Formation) of the Giant