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An individuals utility function is given as where X represents the money, he has available for spending in a given time period. This individual has
- An individuals utility function is given as where X represents the money, he has available for spending in a given time period. This individual has income of $225 in each time period and he discounts the future at the rate of 0.7. If he invests his up-front cost is 25 and his return in in the next time period is 35.
- Would this individual consider investing if his investment is financed by borrowing and cost of borrowing is 30%? (Consider two period model to justify your answer)
- Would this individual consider investing if his investment is financed by current savings? (Use two period model to justify your answer).
- Would this individual consider investing if his investment is financed by: $10 from current savings and rest of it from borrowing and the cost of borrowing is 30%? (Use two period model to justify your answer).
- What is the minimum discount rate at which individual will consider investing if his investment is financed by current savings? (Use two period model to justify your answer).
- Would this individual consider investing if his investment is financed by saving up $10 from time period 0 and rest of it from time period 1 and invest in time period 1 and receive returns in period 2. Assume that interest received on saved money is 20% and individual will not save if he is not investing (Use three period model)
- Would this individual consider investing if his investment is financed by:
- Saving up $8 from both time period 0 and time period 1;
- Rest of it from borrowing from time period 1 and invest in time period 1 and receive returns in period 2.
- Assume that interest received on saved money is 20%, at the cost of borrowing is 30%, and individual will not save if he is not investing (Use three period model to justify your answer)
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