Question: Bob is twenty years old and has initial wealth of $-20,000. He expects to work up to age 70, with the first ten years of earning $50,000 annually and the rest working years of earning $70,000 per year. He expects to get a bequest from his granddad at age 30 for $200,000 (written in will). His life span will be 65 (died at 85).
a) Compute his consumption C.
b) What is his total wealth at age 35?
c) What is his annual saving for the first ten years and the rest working years?
d) If the bequest is replaced with the same lottery income, does that change your answers above?
e) Explain why so many lottery winners end up with poverty.