You are a senior graduating soon. In 2010, the average annual wage was about $63,000. Suppose you graduate when you are 22 and will retire when you are 67 (normal in the United States, about 45 years of work). Assuming your wages do not grow over time, ignoring inflation, and assuming we discount the future at 4.5 percent, what would be the present value of your human capital? If we discount the future at 3 percent, what would be your present value lifetime income? Intuitively explain the difference.

Question

Quizplus · Accepted Answer

The Answer of You are a senior graduating soon. In 2010, the average annual wage was about $63,000. Suppose you graduate when you are 22 and will retire when you are 67 (normal in the United States, about 45 years of work). Assuming your wages do not grow over time, ignoring inflation, and assuming we discount the future at 4.5 percent, what would be the present value of your human capital? If we discount the future at 3 percent, what would be your present value lifetime income? Intuitively explain the difference.

You Are a Senior Graduating Soon