Casper Milktoast has $200,000 available to support consumption in periods 0
(now) and 1 (next year). He wants to consume exactly the same amount in each
period. The interest rate is 8%. There is no risk.
a) How much should he invest, and how much can he consume in each period?
b) Suppose Casper is given an opportunity to invest up to $200,000 at 10%
risk-free. The interest rate stays at 8%. What should he do, and how much
can he consume in each period?
c) What is the NPV of the opportunity in (b)?