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Consider the country of Freedonia. Let i = 0.05. Groucho, a man living in Freedonia, is trying to figure out if he should take a year of extra education. If he does, Groucho can earn

Consider the country of Freedonia. Let i = 0.05. Groucho, a man living in Freedonia, is trying to figure out if he should take a year of extra education. If he does, Groucho can earn $40 that year(t = 1). The year after that, he can earn $220.

  1. What is Groucho’s present value of future payments if he educates himself?
  2. Groucho could earn $100 this year if he does not enroll in the education program. If he does enroll, he must do not have to pay any tuition immediately, but for the next year, Groucho must pay $50 per year to the program. What is the present cost of enrolling in the year-long education program?
  3. Find the internal rate of return for this extra year of schooling.
  4. Will Groucho end up enrolling? Why or why not?

Apr 13 2021 View more View Less

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