How many dollars will she save during the good years

Assignment Help Corporate Finance

Reference no: EM131832941

Let's work out a simple example in which a person smooths her consumption over time. Gwen is a real estate agent, and she knows that she will have some good years and some bad years.

She figures that half the time she'll earn $90,000 per year, and half the time she'll earn $20,000 per year. These numbers are after taxes and after saving for retirement. These numbers are all she has to worry about.

a. If we ignore interest costs just to keep things simple, how much should Gwen consume in the average year?

b. How many dollars will she save during the good years?

c. How many dollars will she borrow during the bad years?

Reference no: EM131832941

Questions Cloud

Write a program that accepts data from one column : Write a program that accepts data from one column and returns the corresponding data from the other columns in the stored file.

What tends to happen to banks that make low-interest rate : In a competitive banking system, what tends to happen to banks that make low-interest rate loans to the banker's friends.

Which curve will shift to bring output growth back : After a monetary shock hits aggregate demand, which curve will shift to bring output growth back to the Solow growth rate: the short-run aggregate supply curve.

Evaluate these probabilities under the assumption : Evaluate these probabilities under the assumption that 960 = 0.025 and q65 = 0.040.

How many dollars will she save during the good years : If we ignore interest costs just to keep things simple, how much should Gwen consume in the average year?How many dollars will she save during the good years?

What is the probability that after walking : What is the probability that after walking 100 yards he will be (i) back at his starting point, (ii) within 10 yards of his starting point

Preceding exercise under the assumption : Do the preceding exercise under the assumption that the coin tossed by the young man is unfair and has probability 0.51 of falling heads

Play the game of odd man out with fair coins : Let 4 persons play the game of "odd man out" with fair coins. What is the probability, for n = 1, 2, ... , that n plays will be required to conclude the game

Where would you expect to see more entrepreneurs coming : In many poor countries, the banking system just isn't advanced enough to lend money for many large investments.

User Account

All Pages