Question: Smith lives in a world with two time periods His
Smith lives in a world with two time periods. His income in each period, which he receives at the beginning of each period, is $210. If the interest rate, ex-pressed as a fraction, is 0.05 per time period, what is the present value of his lifetime income? Draw his inter-temporal budget constraint. On the same axes, draw Smith’s inter-temporal budget constraint when r = 0.20.
Answer to relevant QuestionsHow will your answer to the preceding problem differ if the tuition charged by outside universities is $12,000/yr? What is the economic interpretation of a value of k greater than 1?Explain in detail what will happen to an insurance company that charges teen-age males the same rates for automobile insurance as it charges its other customers.Your current wealth level is M = 49 and you are forced to make the following wager: If a fair coin comes up heads, you get 15; you lose 13 if it comes up tails. Your utility function is U = √M.a. What is the expected value ...A fair coin is flipped twice and the following payoffs are assigned to each of the four possible outcomes: H - H: win 20; H - T: win 9; T - H: lose 7; T - T: lose 16. What is the expected value of this gamble?You are a buyer for a used- car dealer. You attend car auctions and bid on cars that will be sold at the dealer. The cars are sold “as is” and there is seldom an opportunity to make a thorough inspection. Under these ...
Post your question