Porter makes three-year loans that include inflation protection. The annual interest rate compounded continuously that must be paid is 3.2% plus the rate of inflation.

US. government borrows 100,000 for three years from Porter, actual annual inflation rate during the first year was 2.4% compounded continuously. The actual annual inflation rates for the second and third years respectively was 2.8% and 4.2% compounded continuously.

The U.S. government is considered a risk free borrower, which means there is no chance of default.

Calculate the amount that the U.S. government will owe Porter at the end of three years.

1. 120,560
2. 120,740
3. 120,925
4. 121,125
5. 122,250