James has a wage income of $50.000 in the present and $200.000 in the future. His utility is given as U = min (2Cp, Cr) - that is, his utility is the lesser of twice the dollars spent on present consumption or the dollars spent on future consumption. The interest rate is 30%. (A) What is the minimum amount of money James would be willing to accept today to have the interest rate at 40% rather than 30%? Explain and show work (B) What is the maximum amount of money James would pay today to have the interest rate at 30% rather than 40%? Explain and show wor
James has a wage income of $50.000 in the present and $200.000 in the future. His utility is given as U = min (2Cp, Cr) - that is, his utility is the lesser of twice the dollars spent on present consumption or the dollars spent on future consumption. The interest rate is 30%. (A) What is the minimum amount of money James would be willing to accept today to have the interest rate at 40% rather than 30%? Explain and show work (B) What is the maximum amount of money James would pay today to have the interest rate at 30% rather than 40%? Explain and show wor
Chapter17: Capital And Time
Section: Chapter Questions
Problem 17.3P
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James has a wage income of $50.000 in the present and $200.000 in the future. His
utility is given as U = min (2Cp, Cr) - that is, his utility is the lesser of twice the dollars spent on
present consumption or the dollars spent on future consumption. The interest rate is 30%.
(A) What is the minimum amount of money James would be willing to accept today to have the interest rate at 40% rather than 30%? Explain and show work
(B) What is the maximum amount of money James would pay today to have the interest rate at 30% rather than 40%? Explain and show work
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