Question

James Bennett also allocates wealth between youth and old age. He has no cash currently (in his youth), but will inherit $3000 in his old age. He can lend and borrow at the bank at 18% (that is, lending $1 in youth will give him $1.18 in old age). He has an investment opportunity that costs $12,000 now in his youth and has a payoff of $15,000 in his old age. This is the only investment opportunity available to him. What is the most he can consume in his youth?

Answer 1

Answer:12344

Explanation:

Answer 2

Answer to the given question is as under.

• We are required to find out investment opportunity for James Bennet .
• We are given the information that James allocates wealth between youth and old age. Currently he has no cash.
• He can lend or borrow at the bank at 18%.
• He is given with some investment opportunities.
• Invest refers to the act of putting money in bank , property or business.
• Investment is also a kind of saving .
• The most amount that he should spend in his youth is $ 15, 254.23.
• Calculation is shown as follows.
• Present value x 1.18 = future value.
• Future value = $ 15,000 + $ 3000

= $ 18,000

• Hence present value = $ 18,000 / 1.18

= $ 15, 254.23.

• Present value refers to the value that represent today' s value.
• Hence we can draw a conclusion that the most amount that he can spend in his youth is $15,254.23.

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