Mr. Free has $100 dollars income this year and zero income next year. The market interest rate is 10% per year. If Mr. Free consumes $30 this year, and invests the rest in the market, what will be his consumption next year?

Question

Quizplus · Accepted Answer

If Mr. Free invests $70 in the market at a 10% interest rate, he will have $77 next year. Therefore, he can consume $30 this year and $77 next year, for a total consumption of $107 over the two-year period.

Mr Free Has $100 Dollars Income This Year and Zero