Answer Happy

An individual’s utility function is given as where X
represents the money, he has available for spending in a given time
period. This individual has income of $225 in each time period and
he discounts the future at the rate of 0.7. If he invests his
up-front cost is 25 and his return in in the next time period is
35.


Would this individual consider investing if his investment is
financed by borrowing and cost of borrowing is 30%? (Consider two
period model to justify your answer)
Would this individual consider investing if his investment is
financed by current savings? (Use two period model to justify your
answer).
Would this individual consider investing if his investment is
financed by: $10 from current savings and rest of it from borrowing
and the cost of borrowing is 30%? (Use two period model to justify
your answer).
What is the minimum discount rate at which individual will
consider investing if his investment is financed by current
savings? (Use two period model to justify your answer).
Would this individual consider investing if his investment is
financed by “saving up” $10 from time period 0 and rest of it from
time period 1 and invest in time period 1 and receive returns in
period 2. Assume that interest received on saved money is 20% and
individual will not save if he is not investing (Use three period
model)
Would this individual consider investing if his investment is
financed by:


“Saving up” $8 from both time period 0 and time period
1;
Rest of it from borrowing from time period 1 and invest in time
period 1 and receive returns in period 2.
Assume that interest received on saved money is 20%, at the
cost of borrowing is 30%, and individual will not save if he is not
investing (Use three period model to justify your answer)