Use the data file "dataset about majors" to determine if it makes sense for the average person with your major and gender to get a 2-year-long master's degree. Use Business and Male as your major and gender.

To simplify the calculations, assume that the average working life has 4 periods.

Period 1 is when you just finish college at ages 22 and 23 and might spend these two years getting a master's degree. This period does not need to be discounted.

Period 2 is early career ages 24-36 (for earnings in period 2 restrict the sample to people with your major and gender age>23 & age<37) [midpoint age 30]

Period 3 is mid-career ages 37-45 [midpoint age 41]

Period 4 is late-career ages 46-60. [midpoint age 54]

To simplify calculations, assume that Period 2 which is 13 years long occurs on average 7 years in the future when discounting, that Period 3 which is 9 years long occurs 18 years in the future, and that Period 4 which is 15 years long occurs 31 years in the future.

a) Assume the direct cost for a master's degree is $35,000 per year. What is the total cost of getting a master's degree during Period 1 (age 22 and 23) for someone with your major and your gender? (If you are a double/dual major pick the major you most affiliate with.) When computing the opportunity cost assume that 22 and 23-year-olds work full time full-year upon college graduation if they are not getting a master's degree (i.e. limit the sample to those who work 50-52 weeks a year and more than 35 hours a week) and that one would not work while getting a master's degree. Use mean wage as your best guess for expected earnings for someone with your gender and major. Please include your Stata code in your answer. (Don't submit a separate .do file) (3.5 pts)

b) Given a discount rate of .08 in present value terms how much more money would someone with your gender and major make over the 13 years that make up period 2 if they have a master's degree than if they only have a college degree? (Hint compute average annual earnings for everyone in this age group that corresponds to Period 2 and then multiply by 13 for total expected earnings during Period 2.) Please include your Stata code and show your work. For this part, you should limit to incwage>0 but you do not need to assume full year or full-time work because who knows if in the future you will work full-time or not. (3.5 pts)

c) Provide a human capital reason why someone with a master's degree earns more than someone with only a college degree. (1 pt)

d) Provide a signaling reason why someone with a master's degree earns more than someone with only a college degree. Be sure to state what has to be true for the master's degree to serve as a signal. (2 pt)

e) Given a discount rate of .08 in present value terms how much more money would someone with your major and gender make in period 3 if they have a master's degree than if they only have a college degree? Maintain the appropriate assumptions from part b) Please include your Stata code and show your work. (1.75 pts)

f) For which education group (master's or college degree) is the age-wage profile steeper? Provide a possible reason why. (1.5 pt)

g) Given a discount rate of .08 in present value terms how much more money would someone with your major and gender make in period 4 if they have a master's degree than if they only have a college degree? Maintain the appropriate assumptions from part b) Please include your Stata code and show your work. (1.75 pts)

h) Given the information above, should the typical person with your gender and major get a master's degree? (Ignore any nonfinancial costs or benefits.) Explain/Show your work. (1 pt)

i) Name one factor that might increase an individual's discount rate. If the discount rate was .12 does that increase or decrease the likelihood of getting a master's degree? Explain and redo the calculations for period 2 above. (2.5 pts)

j) If you knew you were going to work full-time full-year during Periods 2, 3, and 4 does that increase or decrease the likelihood of getting a master's degree? Explain no calculations are needed, but you can include them if you wish. (1.5 pts)

Answer rating: 100% (QA)

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