PA 5431/HRIR 5655: Public Policies on Work and Pay

George Jones lives for two periods. If he does not become educated he will earn $700 at the endof period 1 and 900 at the end of period 2. If he does become educated, he will earn $800 in the end of period 1 and will have to borrow $13,000 to pay for tuition and books at the beginning of period 1. But, he will earn $11,000 at the end of period 2.1 If the risk adjusted rate of interest is 2.5% per period:

(a)Should George borrow to make the investment in his education based solely on the economic returns to schooling?

b) What is the positive internal rate of return on this investment?