MrOBKandle Has a Utility Function C₁c₂, Where C₁ Is His

question 10

Multiple Choice

Mr.O.B.Kandle has a utility function c₁c₂, where c₁ is his consumption in period 1 and c₂ is his consumption in period 2.He has no income in period 2.If he had an income of $50,000 in period 1 and the interest rate increased from 10 to 15%,

• A)his savings would increase by 5% and his consumption in period 2 would also increase.
• B)his savings would not change but his consumption in period 2 would increase by 1,250.
• C)his consumption in both periods would increase.
• D)his consumption in both periods would decrease.
• E)his consumption in period 1 would decrease by 15% and his consumption in period 2 would also decrease.

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Definitions:

Value Increase

An appreciation in the worth or market value of an asset over time.

Time To Expiration

The duration remaining until the expiration date of a financial contract, most commonly used in the context of options or other derivative instruments.

Call Increases

The rise in the value or price of call options, which are contracts granting the right to purchase a stock at a specified price within a certain period.

Value

The monetary, material, or assessed worth of an asset, good, or service.