1. The problem statement, all variables and given/known data What is the permanent income that corresponds to present value of the two period income path Y 1 =100, Y 2 =125 for the real interest rate r=.5? (Note: 50% not ½%!) 2. Relevant equations PV = Y1 + Y2/(1+r)^t 3. The attempt at a solution Correct Answer: a) 110 I did Pv = 100 + 125/1,5 = 183, but the answer is 110!?