Answer this question by drawing graphs like Figure 2.1. Casper Milktoast has

Answer this question by drawing graphs like Figure 2.1. Casper Milktoast has

$200000 available to support consumption in periods 0 (now) and 1 (next year). He

wants to consume exactlythe same amount in each period. The interest rate is 8 percent.

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 $200000 at 10 percent risk free. The interest rate stays at 8 percent. What should he do and
how much can he

consume in each period?

c. What is the NPV of the opportunity in (b)?