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Let us assume that an 18-year old student Lily has enrolled in a 4-year degree program. She expects to get a job at the age
Let us assume that an 18-year old student Lily has enrolled in a 4-year degree program. She expects to get a job at the age of 22 which will pay her $40,000 per year for the first year and an incremental salary increase of 4% each year, until she retires at the age of 60. The tax rate applicable on labor income is 30% per year. She can take a student loan for he degree program at the rate of 20% per year. She has to repay this loan as a lump-sum amount at the age of 23. What is the maximum amount she can borrow if she wishes to have a constant and positive consumption level of $6,000 per year from the age of 18 to 28 and wants to repay the loan solely from the income earned in the year of repayment
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