Ingrid plans to live for two periods and only cares about consumption in the second period....

  

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Ingrid plans to live for two periods and only cares about consumption in the second period. She is considering studying towards a postgraduate degree in the first period. If she does it, it's going to cost her $200,000 between tuition and foregone wages. Once she graduates, there is a 50% chance that in the second period she will get the job she wants, which will pay her $5,000,000 and an 50% chance she'll get a regular job that will pay her $80,000. If she doesn't study further, she'll put $200,000 in the bank, where it will earn r% interest and she will get a regular job that pays her $80,000. In all cases, since she will only live for two periods, she will consume everything she has in period 2. Suppose Ingrid's preferences over period-2 consumption are given by E - (1) where = 1.3. For what values of r is it a good idea to undertake post-graduate Ingrid plans to live for two periods and only cares about consumption in the second period. She is considering studying towards a postgraduate degree in the first period. If she does it, it's going to cost her $200,000 between tuition and foregone wages. Once she graduates, there is a 50% chance that in the second period she will get the job she wants, which will pay her $5,000,000 and an 50% chance she'll get a regular job that will pay her $80,000. If she doesn't study further, she'll put $200,000 in the bank, where it will earn r% interest and she will get a regular job that pays her $80,000. In all cases, since she will only live for two periods, she will consume everything she has in period 2. Suppose Ingrid's preferences over period-2 consumption are given by E - (1) where = 1.3. For what values of r is it a good idea to undertake post-graduate

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To determine whether its a good idea for Ingrid to undertake postgraduate study we need to compare t... View the full answer