Question

Assume a world in which individuals live forever. There are three choices of schools: high school, associate degree (e.g., community college), and college degree. An individual that goes only to high school needs no additional schooling (beyond high school) but only earns $35,000 per year. They can also choose to complete four years of college which involves a cost of $60,000 per year but leads to them earning $60,000 a year. They can also get an associates degree (from a community college) at a cost of $15,000 per year and will earn $42,000 with that degree. Suppose that is distributed between 0 and 1. Find the sets of people in terms of who attend each type of school. (i.e., find the value of for individuals who go to high schoool, community college and college)

Answer 1

Answer:

Using

standard discounted cash flow analysis where we try to equate the PV of annuity of additional income with the PV of the money that is to be spend on additional education. There are three scenarios, which are tabulated as follows. It appears that interest rate of 5% or 6% is the one which makes it a good decision to go for higher educaiton. Rates higher than this aren't helpful.

Explanation:

Answer 2

Answer: 2.8 to the power of 3 squared by 9