Mr Free Has $100 Income This Year and Zero Income

question 2

Multiple Choice

Mr. Free has $100 income this year and zero income next year. The market interest rate is 10 percent per year. If Mr. Free consumes $30 this year and invests the rest in the market, what will be his consumption next year?

• A)$50
• B)$55
• C)$77
• D)$100

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Definitions:

Tax Liability

The total amount of tax that an individual or entity is legally obligated to pay to a tax authority.

Social Security Tax

A tax levied on both employers and employees to fund the Social Security program, typically taken as a percentage of wages.

Taxable Income

The amount of an individual's or a corporation's income that is subject to taxes, after all deductions and exemptions.

Marginal Tax Rate

The rate at which the next dollar of taxable income is taxed, indicating the percentage of tax applied to your income for each tax bracket in which you qualify.