Calculate the ratio of annual consumption

Reference no: EM1368662

Assume that Jim goes to work at age 25, earns an average $40,000 a year for 40 years. He inherits $320,000 when he starts working. He expects to live to be 75.

(A) Calculate on average how much Jim consumes per year, the ratio of his annual consumption to annual income, and his annual savings rate.

(B) Suppose now that Jim learns he can expect to live to be 85. If Jim does not change his retirement age, compute Jim's new annual consumption, as well as the new ratio of annual consumption to annual income, and his new annual savings plan.

Reference no: EM1368662

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