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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
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 $30,000? d. What is the opportunity cost of the annual $8,000 of additional expenditures in part a)
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