2. Answer this question by drawing graphs like Figure 1A.1 . Casper Milktoast has $200,000

available to support consumption in periods 0 (now) and 1 (next year). He wants to consume

exactly the same amount in each period. The interest rate is 8%. There is no risk.

a. How much should he invest, and how much can he consume in each period?

b. Suppose Casper is given an opportunity to invest up to $200,000 at 10% risk-free. The

interest rate stays at 8%. What should he do, and how much can he consume in each

period?