Chance of the savings account losing half your money

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Reference no: EM1320439

Q. Assume a person has a utility function over consumption today (C1) vs. consumption tomorrow (C2) given by: log (C1) + 0.9log (C2). Assume the person has access to a savings account that pays back an amount 3% also has $10to start.

a) Write down the person's budget constraint?

b) Illustrate what is the person's marginal rate of substitution of consumption today for consumption tomorrow?

c) Elucidate how much does the person save?

d) Assume there is a 50% chance of the savings account losing half your money. Elucidate how much does the person save now?

Reference no: EM1320439

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