An Individual Has an Income of $4,000 in Period 0

question 23

Essay

An individual has an income of $4,000 in period 0 and $0 in period 1. The individual has the potential investment opportunities given below:
An individual has income of $10,000 in period 0 and $25,000 in period 1. An investment opportunity that costs $10,000 in period 0 is worth $10,500 in period 1. The market interest rate is 8%. What is the maximum possible consumption in period 1 if the individual consumes $20,000 in period 0 and the individual follows the NPV rule?

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Definitions:

Control Variable

A control variable is an element that is kept constant throughout an experiment to ensure that the effect on the outcome can be attributed to the variable being tested.

Hypothetical Variable

A variable that is not directly observable, proposed to explain relationships and effects in scientific models.

Dependent Variable

In research, the variable that is being measured or tested to see how it is affected by changes in another variable (the independent variable).

Independent Variable

The variable in an experimental study that is manipulated by the researcher to investigate its effect on the dependent variable.