An Individual Has Income of $35,000 in Period 0 and $40,000

question 35

Multiple Choice

An individual has income of $35,000 in period 0 and $40,000 in period 1. An investment opportunity that costs $10,000 in period 0 is worth $11,000 in period 1. What is the maximum possible consumption in period 0 if the individual consumes $50,000 in period 1 when the market rate of interest is 8%?

• A) $26,000
• B) $26,667
• C) $44,000
• D) $44,720

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Definitions:

Interest Rate

The percentage of a sum of money charged for its use, determining how much borrowers pay to lenders for loans or how much they earn on deposits.

Retirement

The act of leaving one's job or career and ceasing to work, typically due to age or health reasons, often accompanied by receipt of a pension or retirement savings.

Income

The amount of money received, usually from work, investments, or business, over a period.

Retirement

The period of one's life after leaving one's job and ceasing to work, typically due to age or health reasons, often supported by savings or pension.