# Finance

An individual has \$17000 income in period 0 and \$60,000 income in period 1. If the individual desires to consume \$30,000 in period 1, what is the maximum consumption in period 0 assuming the interest rate is 6%?

I can't find a formula to solve this question!!

1. 👍
2. 👎
3. 👁
1. You should need a formula for this.

Based upon the information you have provided, all of the income of period 0 (\$17,000) can be consumed then, and there will still be enough income in period 1 to consume \$30,000 at that time, since the individual earns much more than \$30,000 then. This assumes that the \$30,000 expenditures are not all made at the beginning of period 1.

Are you assuming that a loan is taken out at 6% during period 0 that has to be paid back at the end of period 1? In that case, more than \$17,000 can be taken out in period 0. How much can be spent depends upon when it is taken out during that period, and when it is paid back.

1. 👍
2. 👎
2. I meant to write at the beginning "You should NOT need a formula for this". But if a loan is taken out during period zero, then you do need a formula, but you need additional information as well. (See last paragraph above).

1. 👍
2. 👎
3. Thats all the info that was provided, It's an assignment and I am finding some of these questions ambiguous. Here's two more that are similar:

(1)Cindy has income of \$12000 in year 0.
Calculate her income in year 1 if she wants to consume \$26,000 in year 0 and \$14,000 in year 1. Assume the interest rate is 4% per year.

(2)Jonathan has income of 45000 in period 0 and 65000 in period 1. An investment opportunity that costs \$30000 in period 0 is worth \$32000 in period 1. What is the maximum possible consumption in period 0 if Jonathan consumes \$70000 in period 1 when the market rate of interest in 4%?

1. 👍
2. 👎
4. Hey is it the assignment for Shiller for ADM 2413 , i am stuck on this as well, i think the constraint is to take out a maximum loan at per 0 which should all be paid back at per 1. so we cannot take out more loan at per 0 at 6% than can be paid by per 1's income which is 30000 after the 30000 consumption.

1. 👍
2. 👎
5. The guy wants to consume 30,000 in t=1, but has y=60,000. So, he could in t0, borrow amount L. Since he will need to pay interest, at 6%, on the borrowed amount. So he wants L*(1+.06) = 30000. Solve for L. -- this being the additional consumption in t0.

1. 👍
2. 👎

## Similar Questions

1. ### math

Mrs. Myles gave the same test to both her first and third period class. In first period, the mean was 75 and the range was 30. In third period, the mean was 85 and the range was 50. Which is a true statement? A) Most of third

2. ### finance (firm's net income)

If a firm has a break-even point of 20,000 units and the contribution margin on the sirm's single product is \$3.00 per unit and fixed costs are \$60,000, what will the firm's net income be at sales of 30,000 units? o.k. the break

3. ### Math

Please match the following 3 terms to their definitions. Deduction Taxable Income Tax Credit The amount of income used to calculate how much tax an individual owes the government. (Taxable Income) Any item or expenditure

4. ### accounting

Financial Statement Analysis Portfolio The Income Statement for Pumpkin Co. is shown below: Pumpkin Co. Income Statement for the Month Ended October 21, 2010 revenues sales \$120,000.00 operating expenses salary expense \$10,000.00

1. ### Finance

For each of the following situations, indicate whether FIFO, LIFO, or weighted average applies. a. In a period of rising prices, net income would be highest. b. In a period of rising prices, cost of goods sold would be highest. c.

2. ### Math/Piecewise functions

Write a piecewise definition for the tax due T(x) on an income of x dollars When x

3. ### Economics

Mallory's total income last year was \$24,000, but she could deduct \$12,000 for various reasons. Her taxable income equals the amount left over after deductions. If she had to pay 15 percent of her taxable income in federal income

4. ### Math

A retired couple needs \$12,000 per year in income to supplement their Social Security. They have \$150,000 to invest to obtain this income. They have decided on two investment options: AA bonds yielding 10% per annum and a bank CD

1. ### accounting

18. Balance sheet and income statement data indicate the following: Bonds payable, 6% (issued 2000, due 2020) \$1,200,000 Preferred 8% stock, \$100 par (no change during the year) 200,000 Common stock, \$50 par (no change during the

2. ### Math

A company reports the following income and expenses for a three-month period. What is the company's total profit or loss for the three month period? Great Reads Book Store Month Income Expenses ------------------------------------

3. ### accounting

Cournot Company sells 100,000 wrenches for \$12 a unit. Fixed costs are \$300,000, and net income is \$200,000. What should be reported as variable expenses in the CVP income statement?

4. ### accounting

PLEASE HELPP!! Financial Statement Analysis Portfolio The Income Statement for Pumpkin Co. is shown below: Pumpkin Co.IncomeStatement for the Month Ended October 21, 2010 revenues- blank sales \$120,000.00 operating expenses-blank