Suppose that the average earnings for high school graduates is $25,000, the tuition, fees, and books for typical

Question

year of college total $10,000 and that a college degree takes 5 years.
a) How large must the present value of the increment to earnings from getting a college degree be to make this
investment show a positive return?
b) How much must the present value of the increment to earnings be for this investment to show a return of
10%?

Answer 1

a) calculate the present value of the investment. Since this requires a rate of discount (r), which you do not provide, just show the formula. The PV of the investment is 10000*(1 + (1+r) + (1+r)^2 + (1+r)^3 + (1+r)^4))

for b) increase a) by 10%