What career will debbie pursue if the discount rate is given

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Question: Debbie has just finished high school and is about to decide which type of education to get. She has narrowed down her options to two alternatives. She can either become a marine biologist or a concert pianist. Suppose that 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 tuition and books. She will then earn $472,000 in the second period. If she becomes a concert pianist, it will cost her $40,000 in the first period, but she will earn $500,000 in the second period.

a. Suppose Debbie can lend and borrow money at a 5 percent rate of interest. Which career will she pursue? What if she can lend and borrow money at a 15 percent rate of interest? Will she choose a different option? Why?

b. Suppose that 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: EM132181677

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