Question: Lara allocates wealth between two periods: youth (time 1) and old age (time 2). Currently (in her youth) she has $8,000 in cash. She can

  1. Lara allocates wealth between two periods: youth (time 1) and old age (time 2). Currently (in her youth) she has $8,000 in cash. She can borrow and lend at the bank at a rate of 15% between time 1 and time 2 (that is, lending $1 in youth will give her $1.15 in old age). Her only investment opportunity other than the bank is a project that costs $5,000 now in her youth and has a payoff of $6,000 in her old age. What is the most Lara can consume in her old age? Assume Lara cannot consume a negative amount in her youth.

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