Lend and borrow money at market interest rate

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Mary has two possible career paths. She can become either a biologist or a concert pianist. Mary lives for 2 periods. In the first period she gets the appropriate education for her career. In the second period, she works in the labor market. If Mary becomes a biologist, she will spend $15,000 on education in the first period and earn $475,000 in the second period. If she becomes a concert pianist, she will spend $38,000 on education in the first period and then she will earn $500,000 in the second period.

(a) Suppose Mary can lend and borrow money at a market interest rate of 10 percent between the two periods. Which career will she pursue? Briefly explain your answer.

(b) Suppose the market interest rate falls to 2 percent. Would Mary choose a different career path than in (a)?

Reference no: EM131242578

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