Mr. Thomas has $100 income this year and zero income next year. The market interest rate is 10 percent per year. Mr. Thomas also has an investment opportunity in which he can invest $50 this year and receive $80 next year. Suppose Mr. Thomas consumes $50 this year and invests in the project. What will be his consumption next year?
A)$50
B)$55
C)$80
D)$110

Question

Quizplus · Accepted Answer

Mr. Thomas will have $80 from the investment and $50 from the interest on his savings, for a total of $130. He will consume $50, leaving him with $80 for consumption next year.

Mr Thomas Has $100 Income This Year and Zero Income