The diagram depicts Marco's choice of consumptions in periods 1 and 2. He has $100 worth of grain in period 1 and no income in period 2. Marco decides to invest the entire amount of grain, which gives a return of 50%, and borrow against this future income at a 10% interest rate in order to consume $80 in period 1 (point A). Which of the following statements regarding his balance sheet is correct? Consumption later, $ 1504 62 0 FF (invest grain; 50% return) FF (invest grain; 50% return; borrow at 10%) 80 100 Consumption now, $ 136

The diagram depicts Marco's choice of consumptions in periods 1 and 2. He has $100 worth of grain in period 1 and no income in period 2. Marco decides to invest the entire amount of grain, which gives a return of 50%, and borrow against this future income at a 10% interest rate in order to consume $80 in period 1 (point A). Which of the following statements regarding his balance sheet is correct? Consumption later, $ 1504 62 0 FF (invest grain; 50% return) FF (invest grain; 50% return; borrow at 10%) 80 100 Consumption now, $ 136

ENGR.ECONOMIC ANALYSIS

14th Edition

ISBN:9780190931919

Author:NEWNAN

Publisher:NEWNAN

Chapter1: Making Economics Decisions

Section: Chapter Questions

Problem 1QTC

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Question

The diagram depicts Marco's choice of consumptions in periods 1 and
2. He has $100 worth of grain in period 1 and no income in period 2.
Marco decides to invest the entire amount of grain, which gives a
return of 50%, and borrow against this future income at a 10% interest
rate in order to consume $80 in period 1 (point A). Which of the
following statements regarding his balance sheet is correct?
Consumption later, $
150
62
FF (invest grain; 50% return)
FF (invest grain; 50% return; borrow at 10%)
80 100
Consumption now, $
136
O The asset after borrowing but before consumption in period 1 is $100.
The net worth before consumption in period 2 is $12.
The net worth after consumption in period 1 is $20.
The asset after consumption but before repaying the loan in period 2 is $80.

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