Rebecca is currently 30 years old, plans to retire at age 70, and hopes to live to age 90. Her labour income is $60,000 per year, and she intends to maintain a constant level of real consumption spending over the next 60 years. The real interest rate is 4% per year, and there are no taxes and no growth in real labour income.

1.) What is the appropriate present value of Rebecca’s human capital (i.e., the value of her human capital at the time of her 30th birthday)?

2.) What is the approximate value of Rebecca’s permanent income?

3.) If the real interest rate is increased from 4 percent to 5 percent, then the value of Rebecca’s human capital will be approximately??

4.) If the real interest rate is increased from 4 percent to 5 percent, then the value of Rebecca’s permanent income will be approximately??

Answer rating: 100% (QA)

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