Addie's grandfather has left them a trust and the value of the money they receive depends...
Fantastic news! We've Found the answer you've been seeking!
Question:
![](https://dsd5zvtm8ll6.cloudfront.net/si.experts.images/questions/2022/12/63994ef830cdb_1670991608235.jpg)
Transcribed Image Text:
Addie's grandfather has left them a trust and the value of the money they receive depends on the age choose to collect this gift of money. Their options are given in the table below. Payoff at age 19 $17,000 0 0 Options Collect payment at age 19 Collect payment at age 20 Collect payment at age 21 Suppose Addie is an exponential discounter, and their utility function is u(x)=x. a. If Addie is indifferent between receiving $17,000 at age 19 and receiving $28,000 at age 21, what must their discount factor be? (Show your work). Payoff at age 20 0 Payoff at age 21 0 0 $28.000 $22,000 0 Suppose now that Addie is an exponential discounter with 6-0.9 and utility function u(x)=x. b. Show that Addie is time consistent when making the decision above (i.e., when to collect the gift). Suppose now that Addie is a hyperbolic discounter with 6-0.9 and p=0.8 and utility function u(x)=x. c. Under these conditions, demonstrate that Addie will behave impulsively (and that their preferences change over time). Addie's grandfather has left them a trust and the value of the money they receive depends on the age choose to collect this gift of money. Their options are given in the table below. Payoff at age 19 $17,000 0 0 Options Collect payment at age 19 Collect payment at age 20 Collect payment at age 21 Suppose Addie is an exponential discounter, and their utility function is u(x)=x. a. If Addie is indifferent between receiving $17,000 at age 19 and receiving $28,000 at age 21, what must their discount factor be? (Show your work). Payoff at age 20 0 Payoff at age 21 0 0 $28.000 $22,000 0 Suppose now that Addie is an exponential discounter with 6-0.9 and utility function u(x)=x. b. Show that Addie is time consistent when making the decision above (i.e., when to collect the gift). Suppose now that Addie is a hyperbolic discounter with 6-0.9 and p=0.8 and utility function u(x)=x. c. Under these conditions, demonstrate that Addie will behave impulsively (and that their preferences change over time).
Expert Answer:
Answer rating: 100% (QA)
a If Addie is indifferent between receiving 17000 at age 19 and receiving 28000 at age 21 what must their discount factor be Show your work The discount factor is the rate at which the future value of ... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
Students also viewed these economics questions
-
Suppose the value of b is false and the value of x is 0. What is the value of each of the following expressions? a. b && x == 0 b. b || x == 0 c. !b && x == 0 d. !b || x == 0 e. b && x != 0 f. b || x...
-
The formulas of several chemical substances are given in the table below. For each substance in the table, give its chemical name and predict its molecular structure. Formula CO NH3 SO3 HO CIO Name...
-
The data given in the table below are the midterm scores in a course for a sample of 10 students and the scores of student evaluations of the instructor. (In the instructor evaluation scores, 1 is...
-
Venator fund has a 5% front load. The fund had 13.1% return over the last 5 years. What is the actual annual return for investor invested in the fund for 5 years?
-
Inventory information for Part 311 of Monique Aaron Corp. discloses the following information for the month of June. Assuming that the perpetual inventory method is used and costs are computed at the...
-
A ride in an amusement park consists of a rotating arm AB that has an angular acceleration of AB = {1k] rad/s when AB = {2k] rad/s at the instant shown. Also at this instant the car mounted at the...
-
What is a business model and why is it used? LO.1
-
BookWeb, Inc., sells books and software over the Internet. A recent article in a trade journal has caught the attention of management because the company has experienced soaring inventory handling...
-
In a two-bin inventory system, the amount contained in the second bin is equal to the: * safety stock ROP EOQ optimum stocking level amount in the first bin
-
1 In spite of all the problems that businesses encountered during the pandemic, there were a few positive benefits, including Multiple Choice office expenses went down as less office space was...
-
. EFG Co.has the following transactions for the month of August 2022. August 1 Commenced business with a capital of P1,000,000. August 2 Paid one year's rent in advance amounting to P180,000 August...
-
10.1 Learning Outcomes: Describe managers' appropriate use of power and influence. Identify traits and characteristics of successful leaders. Identify behaviors of successful leaders 10.2 Action...
-
Suppose Ron went to Rio de Janeiro in 2019 when the dollar was worth 4 reals. The price of a cup of coffee at Starbucks in the US was $4, so when Ron converted $4 into reals he had 16 reals, which...
-
The expected annual net income is $200,000; the average investment is $800,000; and depreciation expense is $50,000. Calculate the annual rate of return.
-
How do you define humanities?
-
Write the types of partners ?
-
Following are selected transactions of Danica Company for 2016 and 2017. 2016 Dec. 13 Accepted a $18,000, 45-day, 10% note dated December 13 in granting Miranda Lee a time extension on her past-due...
-
Explain the operation of the dividends received deduction.
-
John Williams (age 42) is a single taxpayer, and he lives at 1324 Forest Dr., Reno, NV 89501. His Social Security number is 555-94-9358. John's earnings and withholdings as the manager of a local...
-
Patty Bayan is a single taxpayer living at 543 Space Drive, Houston, TX 77099. Her Social Security number is 466-33-1234. For 2012, Patty has no dependents, and her W-2 from her job at a local...
-
Janie graduates from high school in 2012 and enrolls in college in the fall. Her parents pay $4,000 for her tuition and fees. a. Assuming Janie's parents have AGI of $170,000, what is the American...
-
13. What does the managements discussion and analysis (MD&A) normally include? Where does a state or local government present this information?
-
12. What impact does the use of the modified approach have on reporting within the government-wide financial statements?
-
14. What does a comprehensive annual financial report (known as the CAFR) include?
![Mobile App Logo](https://dsd5zvtm8ll6.cloudfront.net/includes/images/mobile/finalLogo.png)
Study smarter with the SolutionInn App