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Question 3 Lara Beal allocates wealth between two periods: youth and old age. Currently (in her youth) she has $8,000 in cash. She can lend and borrow at the bank at 15% (that is, lending $1 in youth will give her $1.15 in old age). Her only investment opportunity other than the bank is a project that costs $5,000 now in her youth and has a payoff of $6,000 in her old age. What is the most she can consume in her old age

Respuesta :

Cricetus

Answer:

The correct answer is "$9450".

Explanation:

Given:

Payoff from investment,

= $6000

Lending to bank,

= [tex]8000-5000[/tex]

= [tex]3000[/tex]

Now,

At 15% interest,

The amount to be received from bank will be:

= [tex]3000\times (1+\frac{15}{100} )[/tex]

= [tex]3000(1+0.15)[/tex]

= [tex]3000\times 1.15[/tex]

= [tex]3450[/tex] ($)

hence,

In her old age, most she can assume will be:

= [tex]6000+3450[/tex]

= [tex]9450[/tex] ($)

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