Ms.Anderson has $60,000 income this year and $40,000 next year.The market interest rate is 10% per year.Suppose Ms.Anderson consumes $80,000 this year.What will be her consumption next year?

Question

Quizplus · Accepted Answer

Ms. Anderson's total income over two years is $100,000. If she consumes $80,000 this year, she has $20,000 left. The present value of next year's consumption is $20,000 / (1 + 0.10) = $18,181.82, so she can consume approximately $18,000 next year.

MsAnderson Has $60,000 Income This Year and $40,000 Next Year