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Present value = Future value/(1+ 7), where r= interest rate in decimal form and n= number of years Assume for a moment that your four
Present value = Future value/(1+ 7)", where r= interest rate in decimal form and n= number of years Assume for a moment that your four years of college cost you $15,000 a year in out-of-pocket expenses and you give up another $15,000 a year in what you would have earned had you worked full time. Assume the real interest rate is 5 percent. Since the expenses incurred in the second third, and fourth years are in the future, you must discount them by using the interest rate, in your case, 5 percent. Instructions: Enter your answers rounded to the nearest thousand. a. The discounted cost of going to college for four years is $ 106,000 Now assume that instead of making $15,000 a year without a degree, you earn the degree and make $35,000 a year. b. The annual net benefit from going to college is $ 20,000 Assume that using the present value formula, the present value of 40 years of the annual net benefit found in part (b) is roughly $343,000. c. The net present value (discounted annual net benefits minus the discounted costs) of a college degree is $265,000. $235,000. $215.000. $205,000 Present value = Future value/(1+ 7)", where r= interest rate in decimal form and n= number of years Assume for a moment that your four years of college cost you $15,000 a year in out-of-pocket expenses and you give up another $15,000 a year in what you would have earned had you worked full time. Assume the real interest rate is 5 percent. Since the expenses incurred in the second third, and fourth years are in the future, you must discount them by using the interest rate, in your case, 5 percent. Instructions: Enter your answers rounded to the nearest thousand. a. The discounted cost of going to college for four years is $ 106,000 Now assume that instead of making $15,000 a year without a degree, you earn the degree and make $35,000 a year. b. The annual net benefit from going to college is $ 20,000 Assume that using the present value formula, the present value of 40 years of the annual net benefit found in part (b) is roughly $343,000. c. The net present value (discounted annual net benefits minus the discounted costs) of a college degree is $265,000. $235,000. $215.000. $205,000
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