RSM332H1 Study Guide - Midterm Guide: Capital Market, Savings Account, Nsb Di 2
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Solutions: (a) for mr. oh, his consumption at time 0 and time 1 are given by c0 = 1000 i0. Di erentiating uo with respect to i0, we obtain. Therefore, the optimal investment by mr. oh is i . 0 = 333. 33. (b) if mrs. ner follows the investment decision of mr. oh, her consumption at time 0 and time 1 will be c0 = 1000 333. 33 = 666. 67 and c1 = 30 333. 33 = 547. 72. 4 = 575. 30. (c) the utility of mrs. ner is given by. Di erentiating un with respect to i0, we obtain. Setting the derivative equal to zero, we have. Therefore, the optimal investment by mrs. ner is i investment, the utility of mrs. neh is given by. 4 = 631. 19. (d) when mrs. ner invests 333. 33, her consumption at time 0 and 1 are given by.
