Emilio Fernández Cervantes Fundamentos de Finanzas HW 1 Q1. W*0 = $1839.05 W*1 = $1977.17 W*2 = $2076.105 Q2. a) W*0 = $2,238,461.54 b) W**0 = $2,181,923.08 Q3. a) No, because maximum present wealth in y0 is lower than the requiered c0 ( $55,000 < $80,000). Although he could achieve his objective in y1 because y1>c1. b) No, because having the same rate for borrowing and lending does not create value, only transfers it through time. And as the total endowment Mr. X is getting is below his consumption need he cannot achieve his consumption objective. c) Z = $122,100.00 d) So firstly borrowing from y1 to get W0 he must use part of it to then invest. The return of that investment would give Mr. X a maximum present wealth of $146,000. Then what he has to do is to allocate (using the rate given) the consumption so that he achieves c0 and c1 Q4. a) W*1 = $11,900.00 b) W**0 = $10266.67 c) W**1 = $11,990.00 d) r = 16.8%