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Question: question 8 suppose that bibis utility function for intertemporal consumption...

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Question 8: Suppose that Bibis utility function for inter-temporal consumption is: U(C0.cl)-In(C0) + [0.4 * İn(C1)] where Cois his current period consumption, C, is his future period consumption. Bibi is endowed with mo 90,000 in this period (to) and mo -$500,000 in the next period (t1). And suppose there a perfect capital market in which Bibi can borrow and lend at 25% (risk-free). i. What is Bibis optimal consumption bundle (i.e., the optimal level of current and future consumption) if he can only allocate wealth through lending and borrowing? (i.e. estimate Coand C1) Suppose now Bibi discovers an investment opportunity. He can invest today 80,000 and receives $135,000 in the future. Should Bibi take advantage of this opportunity? Justify your answer! If Bibi no longer has access to the capital market, should he take advantage of the investment opportunity to improve his consumption bundle? | 2) 3)

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