1. Suppose Mallory lives for two periods, t = 1,2. In period 1, she could either...

Transcribed Image Text:

1. Suppose Mallory lives for two periods, t = 1,2. In period 1, she could either directly enter the labor force and earn $30,000, or she could enroll in college where her costs would be $45,000. In period 2, Mallory will either earn $30,000 if she chose to enter the workforce in period 1, or $120,000 if she went to college in the first period. (a) What is the net present value of Mallory's earnings if she decides to directly enter the labor [2 pts] force in period 1 and her discount rate is 5%? (b) What is the net present value of Mallory's earnings if she decides to go to college in period [2 pts] 1 and her discount rate is 5%? (c) At a discount rate of 5%, what path (college vs. non-college) maximizes Mallory's present [2 pts] value of lifetime earnings? (d) At a discount rate of 25%, what path (college vs. non-college) maximizes Mallory's present [4 pts] value of lifetime earnings? 1. Suppose Mallory lives for two periods, t = 1,2. In period 1, she could either directly enter the labor force and earn $30,000, or she could enroll in college where her costs would be $45,000. In period 2, Mallory will either earn $30,000 if she chose to enter the workforce in period 1, or $120,000 if she went to college in the first period. (a) What is the net present value of Mallory's earnings if she decides to directly enter the labor [2 pts] force in period 1 and her discount rate is 5%? (b) What is the net present value of Mallory's earnings if she decides to go to college in period [2 pts] 1 and her discount rate is 5%? (c) At a discount rate of 5%, what path (college vs. non-college) maximizes Mallory's present [2 pts] value of lifetime earnings? (d) At a discount rate of 25%, what path (college vs. non-college) maximizes Mallory's present [4 pts] value of lifetime earnings?

Answer rating: 100% (QA)

a If Mallory directly enters the labor force in period 1 at a discount rate of 5 her NPV is calculat... View the full answer