Suppose that there are two possible investors with entirely different preferences. Think of A as an ant, who wishes to save for the future, and of G as a grasshopper, who would prefer to spend all his wealth on some ephemeral frolic, taking no heed of tomorrow. Suppose that each has a nest egg of exactly $100,000 in cash. G chooses to spend all of it today, while A prefers to invest it in the financial market. Both have access to a well-functioning, competitive financial market, in which they can borrow and lend at 20% interest rate.

Suppose that A and G are offered the opportunity to invest their $100,000 in a new business that a friend is founding. This will produce a one-off surefire payment of $111,000 next year.

Select all the correct answers:

a. A would lend, consume 0 today and $120,000 next year

b. G would borrow, consume $111,00 today and 0 next year

c. A would lend, consume 0 today and $111,000 next year

d. G would borrow, consume $105,714 today and 0 next year

e. G would borrow, consume $100,000 today and 0 next year

(If you cannot find your answer in the choices below, please choose the choice that is closest to your answer)

Group of answer choices

A and D

A and B

B and C

C and D

B and D

A and E

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