Question
URGENT !!! Suppose that there are two possible investors with entirely different preferences. Think of A as an ant, who wishes to save for the
URGENT !!!
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 10% 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 $105,000 next year. Question: What would the ant (A) and grasshopper (G) do ? (select the correct answer/s)
Multiple Choice
A would lend, consume 0 today and $110,000 next year
A would lend, consume 0 today and $105,000 next year
G would borrow, consume $110,000 today and 0 next year
G would borrow, consume $90,910 today and 0 next year
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