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3. Consider an individual who has the possibility of investing an amount t in period 1 in a
fund that gives an amount s in period 2.
(a) If the interest rate r is positive, what would be the smallest s so that it is optimal for
the consumer to accept that investment?
(b) If t = 100 and s = 115, what is the highest interest rate at which the individual is
willing to invest in that fund?

Top Answer

Answer (a): Minimum value of s for customer to accept the offer, s = t * (1 + r/100) Answer... View the full answer

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