Home Tools Assignment 3 and... ? Sign In cp 1 / 3 + 66.7% X 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 1 1 and 12. Salary Occupation Period 0 Period 1 Period 2 Period 3 Ophthalmologist -5 10 12 Accountant N w Starving artist Sports superstar 15 a Assume your discount factor S = 0.95. Interpret this assumption. Find the value of the interest rate r that corresponds to your discount factor. C Assuming S =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 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 /* that equates these two NPVs. [Hint: you will probably want to use a graphing calculator or an online equation solver to find r*.] 12 More fun with IRR. Refer to Table 5.3 about the payouts available at different jobs. a Find the IRR for becoming an ophthalmologist as opposed to a professional sports star. Compare your result with the IRR from the previous exercise and interpret this difference in terms of the concept of patience. b Find the IRR for becoming an accountant as opposed to an ophthalmologist. How can you interpret a negative IRR? c The IRR for becoming an accountant as opposed to a starving artist is infinite. Explain why this makes sense. d Does the NPV of salaries in the various professions tell you everything you need to know about picking a career? What does this calculation leave out