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Suppose you are choosing how much you will borrow or save. Your income in period 1 is $7,000. You are expecting a promotion in the next period and you are certain your income in period 2 is $10,000. If your discount rate is (1/1.01) and the market interest rate is 1.01, how much will you borrow (or save)? Assume that your utility function is u(x)=ln(x). Compute the optimal amount of borrowing (or saving), $s.

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Financial Management, Finance

Category:- Financial Management
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