Reference no: EM13652824

3. Suet Wing faces a choice between the following two available options, where assume that the real riskfree interest rate is 5% per annum: 

Option A: Pay $150,000 tuition, by borrowing money from a bank that needs to be fully paid at the end of the year, for a Masters degree in a full-time one year program at XXX University. 

Option B: Take a full time job in a bank with a salary of $500,000 per year, where for simplicity assume that the salary is paid at the end of the year. 

(a) What must be the minimum expected benefit from having the Masters degree in Option A in order for Suet Wing to choose option A over B? 

(b) How would your answer to part (a) change if Suet Wing had a (really) wealthy grandmother who was willing to gift her $150,000 as a birthday present? 

Now suppose Suet Wing has another option: 

Option C: Take the same job in the bank as in Option B but on a part-time basis earning $300,000 per year and pay $150,000 tuition for the same Masters degree as in Option A but now in a part-time two year program at XXX University. 
(c) What must be the minimum expected benefit from having the Masters degree in order for Suet Wing to choose option C over B? 

(d) Can you think of some potential reasons for Suet Wing to choose Option A over Option B?