age. If he just undertakes this and project A, then he can consume $850,000 now and S340.000 later on Project c and so on There are a number of other projects he thinks of. We can trace out a curve to approximate these, e.g., see above With projects alone he can consume anywhere along the curve Proiects and the bank We now consider what he can do if we take account of both his projects and the ossibility of borrowing and lending at the bank Project A Suppose he just undertakes the first project, A. He has $950,000 now and $200,000 later on--what can he do? (i He could simply consume $950,000 now and $200,000 later on without going to the bank (i) Alternatively, he can use all the money he receives to have a marvelous time He has $950,000 now and $200,000 later on, which he can use to repay a loan that he spends now. How much can he borrow to repay with the $200,000 later on; i.e., what is the present value of $200,000 at 20%? PV(200,0000at20%)=200.000=166666 Total possible in consumption youth= 950,000+ 166, 666 $1.1167M 66 age. If he just undertakes this and project A, then he can consume $850,000 now and $340,000 later on. Project C and so on There are a number of other projects he thinks of. We can trace out a curve to approximate these, e.g., see above. With projects alone he can consume anywhere along the curve. Projects and the Bank We now consider what he can do if we take account of both his projects and the possibility of borrowing and lending at the bank. Project A Suppose he just undertakes the first project, A. He has $950,000 now and $200,000 later on--what can he do? (i) He could simply consume $950,000 now and $200,000 later on without going to the bank. (ii) Alternatively, he can use all the money he receives to have a marvelous time. He has $950,000 now and $200,000 later on, which he can use to repay a loan that he spends now. How much can he borrow to repay with the $200,000 later on; i.e., what is the present value of $200,000 at 20%? PV(200,000OA at 20%) = 200,000 = 166,666 1.20 Hence, Total possible in consumption youth = 950,000 + 166,666 = $1.1167M