Joanne has just completed high school and is trying to determine whether to go to communtiy college for two years or go directly to work. Her objective is to maximize the savings she will have in the bank five years from now. If she goes directly to work, she will earn $19,500 per year for each of the next five years. If she goes to community college, for each of the next two years she will earn nothing-indeed, she will have to borrow $6,000 each year to cover tuition and books. This loan must be repaid in full three years after graduation. If she graduates from community college, in each of the subsequent three years, her wages will be $37,500 per year. Joanne's total living expenses and taxes, excluding tuition and books, equal $15,000 per year. Instructions: Enter your responses as whole numbers. a. Suppose, for simplicity, that Joanne can borrow and lend at 0 percent interest. On purely economic grounds, should she go to community college or work? After 5 years, the total value of Joanne's savings would be $ 22500 if she goes directly to work and $ 25500 junior college. So, Joanne should go to junior college b. Does your answer to part a change if Joanne can earn $22,500 per year with only a high school degree? if she goes to Yes if she goes to community college. Joanne should go to work since the total value of Joanne's savings would be $ 37500 work and $ 25500 if she goes directly to
Joanne has just completed high school and is trying to determine whether to go to communtiy college for two years or go directly to work. Her objective is to maximize the savings she will have in the bank five years from now. If she goes directly to work, she will earn $19,500 per year for each of the next five years. If she goes to community college, for each of the next two years she will earn nothing-indeed, she will have to borrow $6,000 each year to cover tuition and books. This loan must be repaid in full three years after graduation. If she graduates from community college, in each of the subsequent three years, her wages will be $37,500 per year. Joanne's total living expenses and taxes, excluding tuition and books, equal $15,000 per year. Instructions: Enter your responses as whole numbers. a. Suppose, for simplicity, that Joanne can borrow and lend at 0 percent interest. On purely economic grounds, should she go to community college or work? After 5 years, the total value of Joanne's savings would be $ 22500 if she goes directly to work and $ 25500 junior college. So, Joanne should go to junior college b. Does your answer to part a change if Joanne can earn $22,500 per year with only a high school degree? if she goes to Yes if she goes to community college. Joanne should go to work since the total value of Joanne's savings would be $ 37500 work and $ 25500 if she goes directly to
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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Transcribed Image Text:Joanne has just completed high school and is trying to determine whether to go to communtiy college for two years or go directly to
work. Her objective is to maximize the savings she will have in the bank five years from now.
If she goes directly to work, she will earn $19,500 per year for each of the next five years. If she goes to community college, for each of
the next two years she will earn nothing—indeed, she will have to borrow $6,000 each year to cover tuition and books. This loan must
be repaid in full three years after graduation. If she graduates from community college, in each of the subsequent three years, her
wages will be $37,500 per year. Joanne's total living expenses and taxes, excluding tuition and books, equal $15,000 per year.
Instructions: Enter your responses as whole numbers.
a. Suppose, for simplicity, that Joanne can borrow and lend at O percent interest. On purely economic grounds, should she go to
community college or work?
After 5 years, the total value of Joanne's savings would be $ 22500
junior college. So, Joanne should go to junior college.
if she goes directly to work and $ 25500
if she goes to
b. Does your answer to part a change if Joanne can earn $22,500 per year with only a high school degree?
Yes . Joanne should go to work , since the total value of Joanne's savings would be $ 37500
work and $ 25500 if she goes to community college.
if she goes directly to
Transcribed Image Text:c. What if Joanne's tuition and books cost $8,000 per year?
Joanne should go to work , since the total value of Joanne's savings would be $ 22500
21500 if she goes to community college.
if she goes directly to work and $
d. Suppose that the interest rate at which Joanne can borrow and lend is 10 percent per year, but she can earn $19,500 with a high
school degree. Her tuition and books at college cost $6,000 and her living expenses are $15,000 per year. Savings are deposited at
the end of the year they are earned and receive (compound) interest at the end of each subsequent year. Similarly, the loans are taken
out at the end of the year in which they are needed, and interest does not accrue until the end of the subsequent year. Now that the
interest rate has risen, should Joanne go to college or go to work?
Joanne should go to work , since the total value of Joanne's savings would be $ 91304
32328 if she goes to community college.
if she goes directly to work and $
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