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How much can he consume in two years’ time if capital market offers an interest rate of 5% per year

BAE

a) This is a three period certainty model problem. Assume that John Brown has a sole income from a trust which will pay him $40,000 now, $30,000 in one year and $60,000 in two years’ time. John wishes to consume $32,000 now and $42,000 in one year. How much can he consume in two years’ time if the capital market offers an interest rate of 5% per year?

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