11 Fun with IRR. Suppose you have just graduated from college and are deciding on a career. Your four career options, along with your salary in each of the four earning periods, are displayed in Table 5.3. Assume that any career will only last four periods before retirement. Table 5.3. Career options and salary information for Exercises 11 and 12. Salary Осcupation Period 0 Period 1 Period 2 Period 3 Ophthalmologist -5 1 10 12 Accountant 4 Starving artist 1 1 1 1 Sports superstar 15 0. Assume your discount factor 8 =0.95. Interpret this assumption. a b Find the value of the interest rate r that corresponds to your discount factor. c Assuming 8=0.95, calculate the net present value (NPV) of becoming an ophthal- mologist and of becoming an accountant. Which career do you prefer?
11 Fun with IRR. Suppose you have just graduated from college and are deciding on a career. Your four career options, along with your salary in each of the four earning periods, are displayed in Table 5.3. Assume that any career will only last four periods before retirement. Table 5.3. Career options and salary information for Exercises 11 and 12. Salary Осcupation Period 0 Period 1 Period 2 Period 3 Ophthalmologist -5 1 10 12 Accountant 4 Starving artist 1 1 1 1 Sports superstar 15 0. Assume your discount factor 8 =0.95. Interpret this assumption. a b Find the value of the interest rate r that corresponds to your discount factor. c Assuming 8=0.95, calculate the net present value (NPV) of becoming an ophthal- mologist and of becoming an accountant. Which career do you prefer?
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
Related questions
Question
![Analytical problems
11 Fun with IRR. Suppose you have just graduated from college and are deciding on a
career. Your four career options, along with your salary in each of the four earning
periods, are displayed in Table 5.3. Assume that any career will only last four periods
before retirement.
Table 5.3. Career options and salary information for Exercises 11 and 12.
Salary
Оccupation
Period 0
Period 1
Period 2
Period 3
Ophthalmologist
-5
1
10
12
Accountant
3
4
Starving artist
1
1
1
1
DND
Sports superstar
15
a Assume your discount factor 8 =0.95. Interpret this assumption.
b Find the value of the interest rate r that corresponds to your discount factor.
c Assuming 8=0.95, calculate the net present value (NPV) of becoming an ophthal-
mologist and of becoming an accountant. Which career do you prefer?
d Will the internal rate of return (IRR) for becoming an ophthalmologist as opposed
%3D
to an accountant be greater or less than your answer to Exercise 11(b)?
e Now assume 8 = 0.6. Calculate both the corresponding interest rate and the
net present value (NPV) of becoming an ophthalmologist and of becoming an
accountant. Now which job do you prefer?
f Find the IRR for becoming an ophthalmologist as opposed to an accountant. That
is, find a value of r* that equates these two NPVS. [Hint: you will probably want to
use a graphing calculator or an online equation solver to find r*.]
Moro fun uith IRP Pefer to Tahle 5 3 about the payouts available at different jobs.
%3D
2.](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F0d3682f7-5903-4680-afd0-9de717894597%2F5bac0e68-9886-4c95-9619-2236b66f6941%2Fkn8wqms_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Analytical problems
11 Fun with IRR. Suppose you have just graduated from college and are deciding on a
career. Your four career options, along with your salary in each of the four earning
periods, are displayed in Table 5.3. Assume that any career will only last four periods
before retirement.
Table 5.3. Career options and salary information for Exercises 11 and 12.
Salary
Оccupation
Period 0
Period 1
Period 2
Period 3
Ophthalmologist
-5
1
10
12
Accountant
3
4
Starving artist
1
1
1
1
DND
Sports superstar
15
a Assume your discount factor 8 =0.95. Interpret this assumption.
b Find the value of the interest rate r that corresponds to your discount factor.
c Assuming 8=0.95, calculate the net present value (NPV) of becoming an ophthal-
mologist and of becoming an accountant. Which career do you prefer?
d Will the internal rate of return (IRR) for becoming an ophthalmologist as opposed
%3D
to an accountant be greater or less than your answer to Exercise 11(b)?
e Now assume 8 = 0.6. Calculate both the corresponding interest rate and the
net present value (NPV) of becoming an ophthalmologist and of becoming an
accountant. Now which job do you prefer?
f Find the IRR for becoming an ophthalmologist as opposed to an accountant. That
is, find a value of r* that equates these two NPVS. [Hint: you will probably want to
use a graphing calculator or an online equation solver to find r*.]
Moro fun uith IRP Pefer to Tahle 5 3 about the payouts available at different jobs.
%3D
2.
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