Hector's wealth is zero,he expects to work for another 45 years at a constant salary of ?$80 000 and live for another 60 years.Assuming taxes are zero,if Hector receives a $20 000 bonus during his first year of work and he completely smooths consumption over his lifetime,his annual consumption is
A) $60 000.
B) $60 333.
C) $80 444.
D) $107 000.

Question

Quizplus · Accepted Answer

Hector's total lifetime income will be $80,000 x 45 = $3,600,000. 
If he completely smooths consumption over his lifetime, his annual consumption will be ($3,600,000 + present value of his bonus) / 60 = ($3,600,000 + $20,000) / 60 = $60,333. 
Therefore, the answer is (B) $60,333.

Hector's Wealth Is Zero,he Expects to Work for Another 45