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Percent discount rate between periods

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Debbie is about to choose a career path. She has narrowed her options to two alternatives. She can either become a marine biologist or a concert pianist. Debbie lives two periods. In the first, she gets an education. In the second, she works in the labor market. If Debbie becomes a marine biologist, she will spend $15,000 on education in the first period and earn $472,000 in the second period. If she becomes a concert pianist, she will spend $40,000 on education in the first period and then earn $500,000 in the second period.

a. Suppose Debbie has a 5 percent discount rate between periods. Which career will she pursue? What if she had a 15 percent discount rate? Will she choose a different option? Why?

b. Suppose musical conservatories raise their tuition so that it now costs Debbie $60,000 to become a concert pianist. What career will Debbie pursue if the discount rate is 5 percent?

Reference no: EM132283825

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