1A) While traveling abroad next summer, you meet Olive Grove, an exceptionally intelligent, prudent, profit-maximizing entrepreneur who owns an orchard worth $5 million. Olive tells you that she has figured out that adding a beekeeping operation to her orchard will be highly profitable for her, because the bees will pollinate her fruit trees, and the fruit trees will enhance honey production. In particular, Olive has identified two options for funding the investment in beekeeping: Option I: Save $40,000 per year for 5 years, then buy $200,000 worth of beehives. This will permanently increase her annual income by $100,000, starting 5 years from now (i.e., when she buys the beehives). Option II: Borrow money from a bank so she can buy the beehives today for $200,000. She will pay the bank 3% per year ($6000) in interest each year for 5 years, then pay back $200,000 in 5 years. This will permanently increase her annual income by $100,000, starting this year (i.e., when she buys the beehives). Assume the numbers listed above are correct and adjusted for inflation (i.e., you can ignore inflation). Also, Options I and II are the only relevant options - do not invent a third option. The question: Which option would you expect Olive to choose? Explain your answer. (The math is intentionally easy here - this part is setting up the main point of the question.) B) Later in your travels, you meet Shady Grove, who is Olive's less prudent sister. Shady tells you that she just had her sports car repossessed: "It is so unfair, just because I missed one payment, or I guess maybe a few, it's hard to keep track. But in any case, the Repo Man came last night and took my car away. That's so unfair, because the payments were really big, because the interest rate was 10%. I just hope the new borrower protection legislation - known as "The BROKE Act" - gets enough votes to pass in our parliament." You learn that the BROKE Act ("The Borrowers Really Oughta Keep Everything Act") will make it much more difficult for lenders to repossess cars, real estate, and other property when borrowers default on their loans. The question: Do you expect that Olive Grove (the prudent sister in Part A) would support the BROKE Act? Explain your answer. (Hint: Ignore any notions of fairness - just focus on investment and total surplus.)

C) Next you meet a third sister, Sophia Grove, who has figured out that attending college will be very profitable for her. She tells you that she does not have any savings now, because she is still in high school, but she has identified two options for funding her investment in higher education: Option I: Save $40,000 per year for 5 years, then pay $200,000 in tuition. This will increase Sophia's annual income by $100,000 per year, starting 5 years from now (i.e., when she starts college - this keeps the math easy, but won't change the punchline to the question). Option II: Borrow money from her sister, Olive, to pay the $200,000 in tuition today. Sophia will pay Olive 3% per year ($6000) in interest each year for 5 years, then pay back $200,000 in 5 years. This will permanently increase her annual income by $100,000, starting this year (i.e., when she starts college - again, this keeps the math easy, but won't change the punchline to the question). Again, assume the numbers listed above are correct and adjusted for inflation (i.e., you can ignore inflation). Also, Options I and II are the only relevant options - do not invent a third option. The question: Which option would you expect Sophia to choose? Explain your answer.