Economics

1. Assume that a man earns $60 in the present year and is expecting a 5% increase in his salary every year. The man has a house worth $10 and financial investments worth

$30. He has five more years until his retirement. He is planning his consumption for 8 years, including the current year. The expected rate of interest in the country is 10%. What will be the effect on the level of consumption if he receives a bonus worth 80% of that year's salary upon his retirement?

2. Let us assume that an 18-years old student Lily has enrolled in a 4-year degree program. She expects to get a job at the age of 22 which will pay her $60,000 per year for the first year and an incremental salary increase of 6% each year, until she retires at the age of 60. The tax rate applicable on labor income is 30% per year. She can take a student loan for her degree program at the rate of 20% per year. She has to repay this loan as a lump-sum amount at the age of 23. What is the maximum amount she can borrow if she wishes to have a constant and positive consumption level of

$5,000 per year from the age of 18 to 28 and wants to repay the loan solely from the income earned in the year of repayment?

Loan amount=$ (Round your answer to two decimal places.)

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