What is the equal annual consumption

Assignment Help Financial Management

Reference no: EM131589638

A. Linus is 18 years old now, and is thinking about taking a 5-year university degree. The degree will cost him $25,000 each year. After he's finished, he expects to make $50,000 per year for 10 years, $75,000 per year for another 10 years, and $100,000 per year for the final 10 years of his working career. If Linus lives to be 100, and if real interest rates stay at 5% per year throughout his life, what is the equal annual consumption he could enjoy until that date?

B. Linus is also considering another option. If he takes a job at the local grocery store, his starting wage will be $40,000 per year, and he will get a 3% raise, in real terms, each year until he retires at the age of 53. If Linus lives to be 100, what is the equal annual consumption he could enjoy until that date?

C. From strictly a financial point of view, is Linus better off choosing option A or B?

Reference no: EM131589638

Questions Cloud

Security market line is defined as positively sloped : The security market line is defined as a positively sloped straight line

Discuss motivation theories-equity theory-expectancy theory : Discuss the following motivation theories Two-Factor Theory (Herzberg). Equity Theory (Adams). Expectancy Theory

Estimate the after-tax return on capital : Estimate the pretax return on capital, by year and on average, for the project. Estimate the after-tax return on capital, by year and on average, for project.

Appear in individual health insurance policies : Explain the following renewal provisions that may appear in individual health insurance policies:

What is the equal annual consumption : what is the equal annual consumption he could enjoy until that date?

May appear in individual health insurance policies : Explain the following renewal provisions that may appear in individual health insurance policies:

What is the minimum expected annual return for stock : what is the minimum expected annual return for Stock 3 that will enable Michele to achieve her investment requirement?

Establishing health savings account : Describe a person (individual or family) who would likely benefit from establishing a health savings account (HAS)

What is amount of the firm net fixed assets : What is the amount of the firm’s net fixed assets?

User Account

All Pages