Vanessa's Utility Function Is U(c¹, C²)= C^1/2₁ + 0

question 41

Multiple Choice

Vanessa's utility function is U(c¹, c²) = c^1/2₁ + 0.83c^1/2₂, where c₁ is her consumption in period 1 and c₂ is her consumption in period 2.In period 2, her income is 4 times as large as her income in period 1.At what interest rate will she choose to consume the same amount in period 2 as in period 1? (Choose the closest answer.)

• A)0.10
• B)0
• C)0.30
• D)0.80
• E)0.20

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Definitions:

Prior Service Credit

A pension plan feature that grants employees credit for service periods before the commencement of the pension plan, affecting their benefits.

Defined Benefit Pension Plan

A retirement plan where the benefits that an employee will receive upon retirement are defined based on a formula considering factors such as salary history and duration of employment.

Service Cost

The portion of the pension expense that is recognized for the increase in pension benefits related to employee services of the current period.