Question

2 Turning Pro

Suppose that the present value of lifetime earnings is $20 million. Assume that interest rate (i) is 5% and the growth rate for 1 year of college is 10% for a certain player.

a) If the player goes to college for 1 year, what is his expected lifetime earnings? Now suppose that this growth rate decreases 2 percentage points each year (so r1 = 10%, r2 = 8%, r3 = 6%, etc).

b) How many years of college would the player attend (assuming he is rational)?

c) If the player decides to stay the amount that was decided in part b, what would be his expected lifetime earnings?

Answer 1