Question: Answer this question by drawing graphs like Figure 1A.1. Casper Milktoast has $200,000 on hand to support consumption in periods 0 (now) and 1 (next

Answer this question by drawing graphs like Figure 1A.1.

Casper Milktoast has $200,000 on hand to support consumption in periods 0 (now) and 1

(next year). He wants to consume exactly the same amount in each period. The interest rate is

8%. There is no risk.

a. How much should he invest, and how much can he consume in each period?

b. Suppose Casper is given an opportunity to invest up to $200,000 at 10% risk-free. The interest

rate stays at 8%. What should he do, and how much can he consume in each period?

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