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PLANNING RETIREMENT Jens is thinking about retirement. Beyond today - he knows that he will live for only two more periods. He will only earn
PLANNING RETIREMENT Jens is thinking about retirement. Beyond today - he knows that he will live for only two more periods. He will only earn income in period 1 of $5000 and needs to decide what to he should do in regards of retirement in period 2 and period 3. He has a discount rate of 3% and a utility function () = 0.4. He is an expected utility maximizer and uses exponential discounting to discount consumption over time. Therefore, he makes intertemporal choices according to the following valuation function = ( 1) + 2 [( 2)] + 3 [( 3)] where 2 = where = 1 and (1+ ) 1 (1+ )2 3 QUESTION 1 - PART 1 Jens has the option of consuming all his income in period 1. Calculating: the utility that he will derive from this option
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