Find current level of optimal consumption

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It is January 1 st , 2021, you are (just turned) 22 years old and are earning $3,000 per month, (with payments received at the start of each month). Each monthly payment is growing at a nominal rate of 3.0% (annual percentage rate, compounded monthly). You estimate that inflation will be 1.5% (annual percentage rate, compounded monthly) for the foreseeable future. In addition, you have $3,500 in student debt and no savings. You have carefully determined that you require $1,500 each month in order to survive (this includes food, basic travel, shelter and any other subsistent consumption). Assume that you will die when you turn 95, retire on your 65th birthday (both with certainty) and that you want a constant real standard of living. Lastly, assume that you have a nominal valuation rate of 5% per year (annual percentage rate, compounded monthly).

Part A: What is your current level of optimal consumption? What is your current optimal savings rate?

Part B: How much financial capital will you have when you start retirement?

Reference no: EM132780905

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