Reference no: EM131518026
From the College Scorecard, average costs of attending UCR is $13,144. Average salary for UCR attendees is $47,200
Average salary of someone who does not attend college is roughly $33,800 ($651/week from slides x 52 weeks). Suppose everyone retires at age 65, everyone leaves high school at age 18, and college lasts 4 years.
a. What is the present discounted value of working immediately instead of going to college if the discount factor is r=(1/(1.05)? What is the present discounted value of going to UCR? Financially speaking, is going to UCR a good deal (assuming you would be continuously working and no wage growth)? Hint: 1+r+r2+...+r46=(1-r47)/(1-r). 1+r+r2+r3=(1-r4)/(1-r). r4+r5+...+r46=(r4-r47)/(1-r).
b. What is the present discounted value of working immediately instead of going to college if the discount rate is r=(1/1.25)? What is the present discounted value of going to UCR? Financially speaking, is going to UCR a good deal (assuming you would be continuously working and no wage growth)? Hint: 1+r+r2+...+r46=(1-r47)/(1-r). 1+r+r2+r3=(1-r4)/(1-r). r4+r5+...+r46=(r4-r47)/(1-r).
c. Now suppose you are entering your last year of college. You would have to pay 1 year of tuition and forgo 1 year of salary at $38,200 to complete your degree. If you complete your degree you will earn $52,200. Maintain the high discount rate (r=1/1.25). You anticipate working 44 years if you work instead of going to college (43 years if you don't). Financially speaking, is going to UCR a good deal (assuming you would be continuously working and no wage growth)?
d. Why might the last year (graduating year) of college have a larger future wage premium associated with it than each of the three previous years of college?