Assuming no bequests,with a real interest rate of 10 percent,wealth of $60,000,current income of $70,000,current consumption of $30,000 and future income of $100,000,future consumption equals ________.
A)$30,000
B)$70,000
C)$100,000
D)$210,000

Question

Quizplus · Accepted Answer

The present value of future income can be calculated as:
PV = FV / (1 + r)^n
where PV is the present value, FV is the future value, r is the interest rate, and n is the number of years.
Using this formula, the present value of future income is:
PV = 100,000 / (1 + 0.1)^1 = 90,909.09
Therefore, the total wealth at present is:
Wealth = 60,000 + 90,909.09 = 150,909.09
The total consumption at present is:
Consumption = 30,000 + PV = 30,000 + 90,909.09 = 120,909.09
The future consumption can be calculated as:
Future Consumption = Consumption * (1 + r)^n
where n is the number of years in the future.
Using this formula, the future consumption is:
Future Consumption = 120,909.09 * (1 + 0.1)^1 = 132,999.99
Therefore, the best choice is (D) $210,000.

Assuming No Bequests,with a Real Interest Rate of 10 Percent,wealth