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 be 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

If Mary invests the $10,000 at an annual rate of return of 20%, at the end of the first year, she would have $10,000 * 1.20 = $12,000. If she leaves the money invested for another year, it would grow another 20%, so she would have $12,000 * 1.20 = $14,400 at the end of the second year. Therefore, the skill must pay at least $14,400 in the second year to be worth taking the class instead of investing the money.

Mary Can Take a Class That Costs $10,000