1. Johes is endowed with inotey me=55,000today and in=38,000tomerros. He desires to consiare60=80,000today andc9=66,000tomorros. objective? Explain. (b) Suppone there is a perfect cagital market in which Joers may locrow of lend as coesumption objective? Explain. (c) Suppoee that in adilition to a perlest capital marlot loess las an oppoetimity to objective. (d) Explain exactly what Jones mast do vaing the capital markit abd investnant oppot- (a) If there is no opportunity to boctow or lesil can Jeem actirve his consumptina objoctive? Explain. (b) Suppowe there is a perfect capital masket it which beos mas bortoer of lend as maich is he desires at the marker interest rate of 10\%. Can Jooes now achieve has coesumption ohjective? Explain. (c) Suppose that in addition to a perfect capital mauloct Jono hes an opportianity to investI0=50,000today and receivef(t0)tornorrom, Deternite the mininum value forf(L0)for which Jones will be able to exactly acheve his consumption objective (d) Explaia exactly what Jones must do using, the capital market and imvestarnt oppor-tunity available to him no that be may exactly achirve his consumption objective.m0=90,000today andm1=500,000tomorrow. Threre is a perfect capital marlaet for (a) Determine the optimal consumptioe plan for Smith. Fxplain exactly what Smith must do each period to achieve lus optimal constumption plan. (Reeall that61lnx=1/x+1(b) Smith has an opportanity to invotf0=80,000today and receivef(f0)=135,000tomorrow, Should be take advantage of this opportanity? If not,

explain why not. Ifm, explain exactly what he shoold do each period to achirse his new optinal consuaphion plan. (c) If Smith no longer has access to the cayital marloet (the cannot boerow or lenef), then should he take advantage of the investment opportualty persectated in (b)? Explain your ravocalize.

1/x1 crewaniptice plaa. (2) Hide Transcribed Text 1. Johes is endowed with inotey me =55,000 today and in =38,000 tomerros. He desires to consiare 60=80,000 today and c9=66,000 tomorros. objective? Explain. (b) Suppone there is a perfect cagital market in which Joers may locrow of lend as coesumption objective? Explain. (c) Suppoee that in adilition to a perlest capital marlot loess las an oppoetimity to objective. (d) Explain exactly what Jones mast do vaing the capital markit abd investnant oppot- (a) If there is no opportunity to boctow or lesil can Jeem actirve his consumptina objoctive? Explain. (b) Suppowe there is a perfect capital masket it which beos mas bortoer of lend as maich is he desires at the marker interest rate of 101%. Can Jooes now achieve has coesumption ohjective? Explain. (c) Suppose that in addition to a perfect capital mauloct Jono hes an opportianity to invest I0=50,000 today and receive f(t0) tornorrom, Deternite the mininum value for f(L0) for which Jones will be able to exactly acheve his consumption objective (d) Explaia exactly what Jones must do using, the capital market and imvestarnt oppor-tunity available to him no that be may exactly achirve his consumption objective. m0=90,000 today and m1=500,000 tomorrow. Threre is a perfect capital marlaet for (a) Determine the optimal consumptioe plan for Smith. Fxplain exactly what Smith must do each period to achieve lus optimal constumption plan. (Reeall that 61lnx=1/x+1 (b) Smith has an opportanity to invot f0=80,000 today and receive f(f0)=135,000 tomorrow, Should be take advantage of this opportanity? If not, explain why not. If m , explain exactly what he shoold do each period to achirse his new optinal consuaphion plan. (c) If Smith no longer has access to the cayital marloet (the cannot boerow or lenef), then should he take advantage of the investment opportualty persectated in (b)? Explain your ravocalize