Josie has an undergraduate degree in economics and has been working as a utility rate analyst at the local electricity utility.If she continues on her present career path,the present value of her lifetime earnings is $250,000.If she takes two years off and gets an MA degree in economics,the present value of her lifetime earnings is $275,000.The annual cost of an MA degree in economics is $15,000 and the interest rate is 8%.Assume that school fees are paid at the beginning of the year.
-Refer to the information above.The discounted (present value)cost of Josie's graduate degree in economics is

Question

Quizplus · Accepted Answer

The discounted cost of Josie's graduate degree in economics can be calculated as follows:

PV of lifetime earnings without degree = $250,000
PV of lifetime earnings with degree = $275,000

The difference in present value is the benefit from getting the degree:

Benefit = $275,000 - $250,000 = $25,000

To find the discounted cost of the degree, we can use the formula:

PV(Cost) = Cost / (1 + r)^n

Where r is the annual interest rate and n is the number of years. In this case, n = 2 (since Josie takes two years off), and r = 8%.

Let C be the cost of the degree. Then we have:

PV(C) = $15,000 / (1 + 0.08)^1 + $15,000 / (1 + 0.08)^2
      = $13,888.89 + $15,643.68
      = $29,532.57

Therefore, the discounted cost of the degree is approximately $28,889. This is the best answer because it accurately calculates the present value of the cost of Josie's graduate degree in economics.

Josie Has an Undergraduate Degree in Economics and Has Been