Suppose going to college costs 20,000 a year. The average earnings of a high- school graduate are 20,000 a year. By going to college, suppose one can expect to earn 50,000 a year. Set up the expressions for the present value of benefits and costs, and the net present value of a college education if the interest rate is 10%. How does this change if the interest rate is 15%? Why is the investment in college less attractive when the interest rate is high?
Suppose going to college costs 20,000 a year. The average earnings of a high- school graduate are 20,000 a year. By going to college, suppose one can expect to earn 50,000 a year. Set up the expressions for the present value of benefits and costs, and the net present value of a college education if the interest rate is 10%. How does this change if the interest rate is 15%? Why is the investment in college less attractive when the interest rate is high?
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
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Transcribed Image Text:Suppose going to college costs 20,000 a year. The average earnings of a high-
school graduate are 20,000 a year. By going to college, suppose one can expect to
earn 50,000 a year. Set up the expressions for the present value of benefits and
costs, and the net present value of a college education if the interest rate is 10%.
How does this change if the interest rate is 15%?
Why is the investment in college less attractive when the interest rate is high?
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