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**1. Homework Statement**

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. Homework 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!?