Jack has just turned 30, and has no savings (i.e., financial capital).

He expects to earn $100,000 per year until the age of 40, and then he expects to earn $200,000 until the age of 60, at which point he will retire. He plans to live until 90 years old, and would like to have a flat (constant) consumption profile for the rest of his life.

Assume that all cash flows occur at the end of each year, and that all values are in inflation-adjusted terms. More importantly, assume that the valuation rate is 0% over the entire life horizon. In other words, money earns nothing, and it costs nothing to borrow. Ignore implicit liabilities. What is Jack’s optimal consumption rate, and at what age will he no longer have any debt?Next, assume that although investment rates are zero (over the entire life horizon), Jack cannot actually borrowat 0%. If he borrowsmoney, he is charged5%interest.

How does this change your answers?