Donald has $100 today. He is aware of TWO investment opportunities: (a) invest $50 and expect to
Question:
Donald has $100 today. He is aware of TWO investment opportunities:
(a) invest $50 and expect to receive $55 in one year’s time, or
(b) invest $100 today and expect to receive $120 in one year’s time.
Suppose Donald will consume $50 this year and is able to borrow the same amount of money today (at 10% per year).What is the maximum amount Donald can expect to consume in the second year (assuming no additional income in one year’s time)?
a. $50
b. $55
c. $60
d. $65
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