This exercise is based on this Forbes' article. The headline is "Price Of College Increasing Almost 8 Times Faster Than Wages" Here is the relevant information for our exercise (the data is taken from various sources; all numbers are in 2018 dollars, so they have been adjusted for inflation). - --- ------- 1989 2019 ==================================================== ===== ============ $52,892 $104,480 Average (Direct) Cost of 4 years College (adjusted for inflation); this is simply calculated as (annual tuition+books+fees)*4 Wage, College Graduate (adjusted for inflation) ================== EEEEEEEEEEEE $47,200 $50,390 ================================ ==== == ========= Wage, High School Graduate (adjusted for inflation) $44,302 $27,708 ========================================================= =========== Time spent working during College 25% 25% =============================================== ========= =========== Expected age of retirement 63 66 = = = = = = ========================================= ========= =========== Average College Graduation Age 23 24 The overall question we want to answer is: is College Education a good investment in 2019? Was it a better investment in 1989? Answering these questions, assume that during College students can earn the average high school wage (but working only 25% of the available hours in a year). Assume a discount rate of 5%. Assume that there is no real-wage growth over time (so the estimates of the investment will be conservative). What was the present discounted value of increased earnings from getting a college degree in 1989