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Joanne has just completed high school and is trying to determine whether to go to community college for two years or go directly to work.
Joanne has just completed high school and is trying to determine whether to go to community 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 $ 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 nothingindeed she will have to borrow $ 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 $ per year. Joannes total living expenses and taxes, excluding tuition and books, equal $ per year.
Instructions: Enter your responses as whole numbers.
a Suppose, for simplicity, that Joanne can borrow and lend at percent interest. On purely economic grounds, should she go to community college or work?
After years, and assuming no interest, the total value of Joanne's savings would be $
if she goes directly to work and $
if she goes to community college. So Joanne should go to
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b Does your answer to part a change if she can earn $ per year with only a high school degree?
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Joanne should go to
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since the total value of Joanne's savings would be $
if she goes directly to work and $
if she goes to community college.
c Does your answer to part a change if Joannes tuition and books cost $ per year?
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Joanne should go to
Click to select
since the total value of Joanne's savings would be $
if she goes directly to work and $
if she goes to community college.
d Suppose that the interest rate at which Joanne can borrow and lend is percent per year, but other data are as in part a 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
Click to select
since the total value of Joanne's savings would be $
if she goes directly to work and $
if she goes to community college.
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