Mary can take a class that costs $10,000. The class teaches her a skill that will only be useful during the second year after training. What must the minimum pay for the skill in the second year for Mary to take the class? She could alternatively invest the $10,000 and earn an annual rate of return of 20%.

Question

Quizplus · Accepted Answer

Mary needs to earn at least as much as she would have from investing the $10,000 at a 20% annual return for two years. The future value of the investment is $10,000 * (1.2)^2 = $14,400.

Mary Can Take a Class That Costs $10,000