FIN 502 Chapter 6: Chapter 6 – The Life Cycle and Financial Intermediation.docx

• School: Ryerson University
• Department: Finance
• Course: FIN 502
• Professor: Laleh Samarbakhsh

Document Summary

Chapter 6 the life cycle and financial intermediation. People have a limited life expectancy, and during their lives they go through different stages of financial positions and earning power. Wn = wo (1 + k) n + sum (et - ct) (e + k)n t. Early in the life cycle, your consumption is likely to exceed your income at least some of the time. During early stage, you are likely to have a lot of debt you buy the durables b/c you want to enjoy their value over many periods. As you proceed in life cycle, you start to earn more than you consume: et - ct > 0. As your children grow, so does your earning power until it peaks in middle age. As children become independent and you pay your debts off, you find yourself with surplus income or savings. The rate of savings increases each year, so total balance of savings increases.