Posted on Categories:Corporate Finance, 企业融资, 金融代写

# 金融代写|企业融资代写Corporate Finance代考|BBOA3010 MAKING CONSUMPTION CHOICES OVER TIME

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## 金融代写|企业融资代写Corporate Finance代考|MAKING CONSUMPTION CHOICES OVER TIME

Figure $3.2$ illustrates the situation faced by a representative individual in the financial market. This person is assumed to have an income of $\$ 50,000$this year and an income of$\$60,000$ next year. The market allows him not only to consume $\$ 50,000$worth of goods this year and$\$60,000$ next year, but also to borrow and lend at the equilibrium interest rate.
The line $A B$ in Figure $3.2$ shows all of the consumption possibilities open to the person through borrowing or lending, and the shaded area contains all of the feasible choices. Let’s look at this figure more closely to see exactly why points in the shaded area are available.

We will use the letter $r$ to denote the interest rate-the equilibrium rate-in this market. The rate is risk-free because we assume that no default can take place. Look at point $A$ on the vertical axis of Figure 3.2. Point $A$ is a height of
$$A=\ 60,000+[\ 50,000 \times(1+r)]$$
For example, if the rate of interest is 10 percent, then point $A$ would be
\begin{aligned} A &=\ 60,000+[\ 50,000 \times(1+0.1)] \ &=\ 60,000+\ 55,000 \ &=\ 115,000 \end{aligned}
Point $A$ is the maximum amount of wealth that this person can spend in the second year. He gets to point $A$ by lending the full income that is available this year, $\$ 50,000$, and consuming none of it. In the second year, then, he will have the second year’s income of$\$60,000$ plus the proceeds from the loan that he made in the first year, $\$ 55,000$, for a total of$\$115,000$.

## 金融代写|企业融资代写Corporate Finance代考|THE COMPETITIVE MARKET

In the previous analysis we assumed the individual moves freely along the line $A B$, and we ignored-and assumed that the individual ignored-any effect his borrowing or lending decisions might have on the equilibrium interest rate itself. What would happen, though, if the total amount of loans outstanding in the market when the person was doing no borrowing or lending was $\$ 10$million, and if our person then decided to lend, say,$\$5$ million? His lending would be half as much as the rest of the market put together, and it would not be unreasonable to think that the equilibrium interest rate would fall to induce more borrowers into the market to take his additional loans. In such a situation the person would have some power in the market to influence the equilibrium rate significantly, and he would take this power into consideration in making his decisions.

In the modern financial market, however, the total amount of borrowing and lending is not $\$ 10$million; rather, as we saw in Chapter 1, it is closer to$\$10$ trillion. In such a huge market no one investor or even any single company can have a significant effect (although a government might). We assume, then, in all of our subsequent discussions and analyses that the financial market is competitive. By that we mean no individuals or firms think they have any effect whatsoever on the interest rates that they face no matter how much borrowing, lending, or investing they do. In the language of economics, individuals who respond to rates and prices by acting as though they have no influence on them are called price takers, and this assumption is sometimes called the price-taking assumption. It is the condition of perfectly competitive financial markets (or, more simply, perfect markets). The following conditions are likely to lead to this:

2. Information about borrowing and lending opportunities is available.
3. There are many traders, and no single trader can have a significant impact on market prices.

## 金融代写|企业融资代写Corporate Finance代考|MAKING CONSUMPTION CHOICES OVER TIME

$$A=\ 60,000+[\ 50,000 \times(1+r)]$$

$$A=\ 60,000+[\ 50,000 \times(1+0.1)] \quad=\ 60,000+\ 55,000=\ 115,000$$

## 金融代写|企业融资代写Corporate Finance代考|THE COMPETITNE MARKET

1. 交易是无成本的。进入金融市场是免费的。
2. 提供有关借代机会的信自。
3. 交易者众多，没有一个交易者可以对市场价格产生重大影响。

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