Question 1: Suppose that Libby and Peggy both live for four periods denoted by t = 0, 1, 2, 3. In period zero, Libby and Peggy graduate from high school. In each period of t = 1, 2, 3, both Libby and Peggy have a choice to go to college or not. In the labor market, people without a Bachelor degree earn wHS = 10; and people with a Bachelor degree earn wBA = 16. If one attends college, her earnings in that period is zero and she needs to pay tuition and effort costs of C = 1. But from the period following the college-attending period and onward, one would have a Bachelor degree. Libby has a discount factor L = 0.5, and Peggy has a discount factor P = 1. Which of the following statements is correct?

(a) Neither Libby nor Peggy would attend college at all.

(b) Peggy would go to college in period 1 and Libby would not go to college at all.

(c) Both Peggy and Libby would attend college in period 1.

(d) Peggy would go to college in period 3 and Libby would go to college in period 1.

(e) Both Peggy and Libby would attend college in period 2.

(f) None of the above.

Question 2: In the last question, as of period 0, what is Peggy's present value of going to college in period 1?

(a) 29

(b) 30

(c) 31

(d) 32

(e) 64

Question 3: In the same setting in the last two questions, except that Peggy has no choice but work in period 1 because she does not have the money for the tuition fee and she is unable to borrow in the credit market. Which of the following is correct?

(a) Peggy would go to college in period 2 instead.

(b) Peggy would go to college in period 3 instead.

(c) Peggy would not go to college at all.

(d) Peggy would go to college in period 2 and go to college again in period 3.

(e) None of the above