Martha plans to graduate as a nurse next year and has begun planning her future with her financial planner. She forecasts her annual income to be $50,000 a year for the next 20 years, and plans to spend approximately $38,000 annually. After working hard during those years and completing her MBA, she plans to significantly increase her annual income in the subsequent 20 years. She expects to earn $90,000 a year in her managerial role. The financial planner informs her that the real risk-free interest rate over the next forty years is expected to be 5% annually

a. Use the lifetime budget constraint to determine her maximum annual expenditures beginning in twenty years?

b. How is the answer in part a) impacted if the interest rate is 10%?

c. How does your answer change if she reduces her spending in the first twenty years to $30,

d. What is the opportunity cost of the annual $8,000 of additional expenditures in part a)?