Question
Li Wei is a graduate student majoring in Zoology. When she completes her degree, she can earn $75,000 per year if she remains in her
Li Wei is a graduate student majoring in Zoology. When she completes her degree, she can earn $75,000 per year if she remains in her home city of Golmud or she can earn $100,000 per year if she moves to Shanghai. Assume Chinese capital markets are perfectly competitive, and it is five percent interest per year in both Golmud and Shanghai forever! In both Golmud and Shanghai, she works for five years and exits the labor market. She has no psychic costs of migrating and is not a tied-mover. However, Golmud is in Western China, and it is costly to migrate to the East; a one-way migration ticket costs $200,000. Li does not get a raise over her worklife.
What is the discounted difference in net present value for Li Wei to move from Golmud to Shaghai?
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