Veronica is 30 years old and is planning to complete MSc in Business and Finance at Warwick Business School. Veronica is currently earning 32,000 per year and can keep this job until age 65. If she decides to undertake her MSc study, she gives up her income for a year and, has to pay 36,000 for tuition. In return, Veronica expects an increase in her salary after receiving her MSc degree. Suppose that after the graduation her salary increases at a 4% per year and that the discount rate is 5%.

a) What is minimum expected starting salary after graduation that makes going to a business school a positive-NPV investment for Veronica? For simplicity, assume that all cash flows occur at the end of each year.

b) After graduation from WBS, Veronica did better than expected and found a job with starting salary of 100,000 and initial contract for 6 years. Her salary will stay the same during the 6 years. After that Veronica will get a permanent contract under which her salary will grow at the rate of 6% per year, until retirement. Retirement will occur in 24 years after the contract becomes permanent. Assuming that salary is paid at the end of the year and the interest rate will stay forever at 5%, what is the PV (as of today) of all your future earnings?

c) Suppose Veronica spends 75% of her salary, and she deposits the remainder in a savings account, which pays the rate 5%. How much money will she have in the savings account just after she received her tenth salary (end of year 10)?

d) It is January and Veronica has just won a lottery that will pay her 55,000 for the following 13 years. The payments will be paid at the end of July, so the first payment will arrive in 7 months from now. What is the present value of lottery payments? The annually compounded interest rate is 5%.