Bank alone Assuming this bank is the only opportunity open to Bill, what can he do? 12M ope=-1+r)=-12 S spent in youth (i He could go on a fantastic trip around the world, spend the whole $IM, and then live in poverty with nothing for his old age (i) He could spend $O5M in his youth, have a moderate lifestyle, put $O.5M in the bank, and still have $0. 6M for his old age (iii He could put all his money in the bank for his old age and spend nothing in his youth, so that he can take an even better trip around the world in his old age. In this case he gets(0, $1. 2M) (iv) If we consider all the other possibilities, we get a straight line between(i)and He can thus consume anywhere on the straight line between SIM in youth and $1. 2M in old age. Analytically we have CoA =1.2M-1.2 CY4 Bank Alone Assuming this bank is the only opportunity open to Bill, what can he do? (i) He could go on a fantastic trip around the world, spend the whole $1M, and then live in poverty with nothing for his old age. (ii) He could spend $0.5M in his youth, have a moderate lifestyle, put $0.5M in the bank, and still have $0.6M for his old age. (iii) He could put all his money in the bank for his old age and spend nothing in his youth, so that he can take an even better trip around the world in his old age. In this case he gets (0, $1.2M). (iv) If we consider all the other possibilities, we get a straight line between (i) and (iii). He can thus consume anywhere on the straight line between $1M in youth and $1.2M in old age. Analytically we have COA = 1.2M - 1.2 CY