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1. (True/False. Explain) A consumer will require compensation for deferring her/his consumption.   2. (True/False. Explain) The...

1. (True/False. Explain) A consumer will require compensation for deferring her/his consumption.  

2. (True/False. Explain) The more free cash flow (FCF) a firm generates, the higher the agency problem is.

3. If you are facing a choice between a federal bond and a municipal offering same yields and risks, which one would you choose? Why?

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Answer #1

I would be answering only the first question as per our guidelines. ( Please mention the questons you are looking solutions for to be clear)

Solution to Answer 1:

TRUE,

A consumer will demand compensation for deferring his/her consumption to future because the marginal of current consumption is high for the consumer as compared to the marginal utility of future consumption.

The reason above can be looked upon as if a consumer is confident about the future potential earnings because of improved Long term economic growth. So he would be less worried about the future and would want to consume more today than to save. In order to save today and to defer the current consumption, he would be willing to do so only if he would be compensated for the same.

If I was able to solve your doubt then do give an upvote. It only motivates to give more effort.

Have a great day!

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