Year	Discount Factor	No College	PDV No College	Cost of college	College Income	Net College Income	PDV College	Net Gain
1	1	$35,000	$35,000	$15,000	$0	($15,000)	($15,000)	($50,000)
2	1.08241569	$35,000	$32,335	$15,000	$0	($15,000)	($13,858)	($50,000)
3	1.171623726	$35,000	$29,873	$15,000	$0	($15,000)	($12,803)	($50,000)
4	1.268183904	$35,000	$27,599	$15,000	$0	($15,000)	($11,828)	($50,000)		PDV College	$450,911
5	1.372702156	$35,000	$25,497	$15,000	$0	($15,000)	($10,927)	($50,000)		PDVNo College	$450,911
6	1.485834352	$35,000	$23,556	$0	$60,000	$60,000	$40,381	$25,000
7	1.608290415	$35,000	$21,762	$0	$60,000	$60,000	$37,307	$25,000		IRR, internal rate of return	8.241569%
8	1.74083878	$35,000	$20,105	$0	$60,000	$60,000	$34,466	$25,000
9	1.88431121	$35,000	$18,574	$0	$60,000	$60,000	$31,842	$25,000		Assumptions
10	2.039608019	$35,000	$17,160	$0	$60,000	$60,000	$29,417	$25,000		Cost of College	$15,000
11	2.207703721	$35,000	$15,854	$0	$60,000	$60,000	$27,178	$25,000		Discount Rate	8.241569%
12	2.389653147	$35,000	$14,646	$0	$60,000	$60,000	$25,108	$25,000		College Income	$60,000
13	2.58659806	$35,000	$13,531	$0	$60,000	$60,000	$23,196	$25,000		Non-college Income	$35,000
14	2.799774325	$35,000	$12,501	$0	$60,000	$60,000	$21,430	$25,000
15	3.030519658	$35,000	$11,549	$0	$60,000	$60,000	$19,799	$25,000
16	3.280282027	$35,000	$10,670	$0	$60,000	$60,000	$18,291	$25,000
17	3.550628735	$35,000	$9,857	$0	$60,000	$60,000	$16,898	$25,000
18	3.843256253	$35,000	$9,107	$0	$60,000	$60,000	$15,612	$25,000
19	4.160000869	$35,000	$8,413	$0	$60,000	$60,000	$14,423	$25,000
20	4.502850212	$35,000	$7,773	$0	$60,000	$60,000	$13,325	$25,000
21	4.87395572	$35,000	$7,181	$0	$60,000	$60,000	$12,310	$25,000
22	5.275646145	$35,000	$6,634	$0	$60,000	$60,000	$11,373	$25,000
23	5.710442163	$35,000	$6,129	$0	$60,000	$60,000	$10,507	$25,000
24	6.181072195	$35,000	$5,662	$0	$60,000	$60,000	$9,707	$25,000
25	6.690489526	$35,000	$5,231	$0	$60,000	$60,000	$8,968	$25,000
26	7.241890838	$35,000	$4,833	$0	$60,000	$60,000	$8,285	$25,000
27	7.83873627	$35,000	$4,465	$0	$60,000	$60,000	$7,654	$25,000
28	8.48477113	$35,000	$4,125	$0	$60,000	$60,000	$7,071	$25,000
29	9.184049399	$35,000	$3,811	$0	$60,000	$60,000	$6,533	$25,000
30	9.940959169	$35,000	$3,521	$0	$60,000	$60,000	$6,036	$25,000
31	10.76025018	$35,000	$3,253	$0	$60,000	$60,000	$5,576	$25,000
32	11.64706363	$35,000	$3,005	$0	$60,000	$60,000	$5,152	$25,000
33	12.60696441	$35,000	$2,776	$0	$60,000	$60,000	$4,759	$25,000
34	13.64597609	$35,000	$2,565	$0	$60,000	$60,000	$4,397	$25,000
35	14.77061862	$35,000	$2,370	$0	$60,000	$60,000	$4,062	$25,000
36	15.98794935	$35,000	$2,189	$0	$60,000	$60,000	$3,753	$25,000
37	17.30560723	$35,000	$2,022	$0	$60,000	$60,000	$3,467	$25,000
38	18.7318608	$35,000	$1,868	$0	$60,000	$60,000	$3,203	$25,000
39	20.27566003	$35,000	$1,726	$0	$60,000	$60,000	$2,959	$25,000
40	21.94669255	$35,000	$1,595	$0	$60,000	$60,000	$2,734	$25,000
41	23.75544436	$35,000	$1,473	$0	$60,000	$60,000	$2,526	$25,000
42	25.7132657	$35,000	$1,361	$0	$60,000	$60,000	$2,333	$25,000
43	27.83244224	$35,000	$1,258	$0	$60,000	$60,000	$2,156	$25,000
44	30.12627218	$35,000	$1,162	$0	$60,000	$60,000	$1,992	$25,000
45	32.6091497	$35,000	$1,073	$0	$60,000	$60,000	$1,840	$25,000
46	35.29665528	$35,000	$992	$0	$60,000	$60,000	$1,700	$25,000
47	38.20565348	$35,000	$916	$0	$60,000	$60,000	$1,570	$25,000
48	41.35439878	$35,000	$846	$0	$60,000	$60,000	$1,451	$25,000
49	44.7626501	$35,000	$782	$0	$60,000	$60,000	$1,340	$25,000
50	48.4517948	$35,000	$722	$0	$60,000	$60,000	$1,238	$25,000

This assignment is based on the spreadsheet Assignment2HumanCapital placed on Blackboard in the folder on assignments. Putting new numbers into the Assumptions in column L will automatically change the numbers in the calculations and the Present Discounted Values (PDV) for each year in Columns D and H, and in the sums in L5 and L6.

1.Suppose the cost of college doubles, to $30,000, without any changes in college income, non-college income, or discount rate.

a.What happens to the Internal Rate of Return, IRR?

b.What happens to the difference between PDV College and PDV No College?

c. If students differ by their costs of borrowing money, what would their discount rate need to be to be just willing to go to college?

d.If students differ by their costs of borrowing money, what would happen to the number of students deciding to go to college?

e. After the cost of college doubles, what change in the College Income would make it just worthwhile for a student to go to college (that is, at what level of College Income would the Present Discounted Value of College just equal the Present Discounted Value of No College)?

2. How would a decline in the discount rate affect the gain from going to college?

3. If the Present Discounted Value of College just equals the Present Discounted Value of No College, how much inequality is generated by the difference in incomes of individuals with and without college?

4. What is the internal rate of return and how is it determined?

5. In Mincers human capital model, what determines the number of people who choose a particular level of education?