Please answer a and b. Year Price Index Costs Benefits 0 100 $10,000 $0 1 104 $0 $6,000 2 108.16 $0 $6,000 The table above lists the costs and benefits that accrue to investment in education. The table lists a price index that reflects the expectation that in each of the two years after the investment has been made, the level of inflation will be 4% while the interest rate in the market will remain constant at 6% per year. a. Use the market interest rate as the discount rate to convert the nominal values of the costs and benefits to present values. b. Does the present value of the benefits exceed the present value of the costs
Please answer a and b. Year Price Index Costs Benefits 0 100 $10,000 $0 1 104 $0 $6,000 2 108.16 $0 $6,000 The table above lists the costs and benefits that accrue to investment in education. The table lists a price index that reflects the expectation that in each of the two years after the investment has been made, the level of inflation will be 4% while the interest rate in the market will remain constant at 6% per year. a. Use the market interest rate as the discount rate to convert the nominal values of the costs and benefits to present values. b. Does the present value of the benefits exceed the present value of the costs
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Please answer a and b.
|
Year |
Price Index | Costs | Benefits |
| 0 | 100 | $10,000 | $0 |
| 1 | 104 | $0 | $6,000 |
| 2 | 108.16 | $0 | $6,000 |
The table above lists the costs and benefits that accrue to investment in education. The table lists a price index that reflects the expectation that in each of the two years after the investment has been made, the level of inflation will be 4% while the interest rate in the market will remain constant at 6% per year.
a. Use the market interest rate as the discount rate to convert the nominal values of the costs and benefits to present values.
b. Does the present value of the benefits exceed the present value of the costs.
c. Why would persons want to invest in their human capital while they are young?
d. Explain why some persons make new human capital investments when they are older.
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