Following textbook question for homework: It is January 1st, 2022, you just turned 31-years-old. You are a high-school (only) graduate working only 40 hours per week -- playing video games for the remainder of the week -- and earning $15 per hour. Your wage is paid annually at the end of each year (assume 52 weeks in each year). It is a relatively safe and secure job (immune to viruses) and you plan to work at this job for the next 30 years of your life, after which you will retire at the end of age 60; obviously to play video games for the rest of your life. Also, assume that your salary (i.e. minimum wage) increases by 2% wage inflation, fixed until your retirement. Notice that it is regular (not delayed) growth. For this question, ignore income taxes, CPP, EI, and vacation entitlements. Part A: You are considering enrolling in a full-time program of study (BBA degree, college diploma, extended technical certificate, etc.) that will require you to stop working for 4 full- time years and pay tuition of $30,000 per year for each of those 4 years (at the end of each year). Right after graduation you come back to your previous job. The benefit of this big investment in your human capital is that when you graduate at the end of age 34, your wage would be $45 per hour. What is the Internal Rate of Return (IRR) from this investment in your human capital? Please state very clearly any-and-all further assumptions you are making in answering this question. Part B: What rate does IRR converge to? In other words, what is the maximum IRR that you can get by working more years and retiring later?
Following textbook question for homework: It is January 1st, 2022, you just turned 31-years-old. You are a high-school (only) graduate working only 40 hours per week -- playing video games for the remainder of the week -- and earning $15 per hour. Your wage is paid annually at the end of each year (assume 52 weeks in each year). It is a relatively safe and secure job (immune to viruses) and you plan to work at this job for the next 30 years of your life, after which you will retire at the end of age 60; obviously to play video games for the rest of your life. Also, assume that your salary (i.e. minimum wage) increases by 2% wage inflation, fixed until your retirement. Notice that it is regular (not delayed) growth. For this question, ignore income taxes, CPP, EI, and vacation entitlements. Part A: You are considering enrolling in a full-time program of study (BBA degree, college diploma, extended technical certificate, etc.) that will require you to stop working for 4 full- time years and pay tuition of $30,000 per year for each of those 4 years (at the end of each year). Right after graduation you come back to your previous job. The benefit of this big investment in your human capital is that when you graduate at the end of age 34, your wage would be $45 per hour. What is the Internal Rate of Return (IRR) from this investment in your human capital? Please state very clearly any-and-all further assumptions you are making in answering this question. Part B: What rate does IRR converge to? In other words, what is the maximum IRR that you can get by working more years and retiring later?
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
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Following textbook question for homework:
It is January 1st, 2022, you just turned 31-years-old. You are a high-school
(only) graduate working only 40 hours per week -- playing video games for the remainder
of the week -- and earning $15 per hour. Your wage is paid annually at the end of each
year (assume 52 weeks in each year). It is a relatively safe and secure job (immune to
viruses) and you plan to work at this job for the next 30 years of your life, after which you
will retire at the end of age 60; obviously to play video games for the rest of your life. Also,
assume that your salary (i.e. minimum wage) increases by 2% wage inflation, fixed until
your retirement. Notice that it is regular (not delayed) growth. For this question, ignore
income taxes, CPP, EI, and vacation entitlements.
(only) graduate working only 40 hours per week -- playing video games for the remainder
of the week -- and earning $15 per hour. Your wage is paid annually at the end of each
year (assume 52 weeks in each year). It is a relatively safe and secure job (immune to
viruses) and you plan to work at this job for the next 30 years of your life, after which you
will retire at the end of age 60; obviously to play video games for the rest of your life. Also,
assume that your salary (i.e. minimum wage) increases by 2% wage inflation, fixed until
your retirement. Notice that it is regular (not delayed) growth. For this question, ignore
income taxes, CPP, EI, and vacation entitlements.
Part A: You are considering enrolling in a full-time program of study (BBA degree, college
diploma, extended technical certificate, etc.) that will require you to stop working for 4 full-
time years and pay tuition of $30,000 per year for each of those 4 years (at the end of
each year). Right after graduation you come back to your previous job. The benefit of this
big investment in your human capital is that when you graduate at the end of age 34, your
wage would be $45 per hour. What is the
investment in your human capital? Please state very clearly any-and-all further assumptions you are making
in answering this question.
Part B: What rate does IRR converge to? In other words, what is the maximum IRR that
you can get by working more years and retiring later?
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