Question

Do the Math 2-1 Economic Trade-off of Graduate School Jessica Sotomajor, of Bangor, Maine, works for a military contractor and hopes to earn an extra $1,000,000 over her remaining 40-year working career by going back to school to obtain a doctor's degree. If her income projection is correct, that's an average of over $25,000 more income a year. Jessica's employer is willing to pay half, or $50,000, toward the $100,000 cost of the annual Ph.D. program, so she must pay $50,000 of her own money. Jessica wonders if expected extra income would warrant spending the money to get the Ph.D. Round your answers to the nearest whole dollar. What is the forgone lost future value of her $50,000 over the 40 years at 9 percent? Round Future value of a Single Amount in intermediate calculations to four decimal places. (Hint: See Appendix A.1.) $ What would be the forgone lost future value of $100,000 over 40 years if Jessica had to pay all the costs for her doctoral degree? Round Future value of a Single Amount in intermediate calculations to four decimal places. (Hint: See Appendix A.1.) $ Advise Jessica as to what she should do. The input in the box below will not be graded, but may be reviewed and considered by your instructor.

Answer 1

Future Value =

P=Principal

r= Rate of interest

n= no. of periods

Case A

F=50000*[1+0.09]^40=50000*31.4094=1570470

Case B

F=100000*[1+0.09]^40=100000*31.4094=3140940

Savings after doing Doctor's Degree

F=25000*[(1+0.09)^40-1]/0.09=8447061.13

So it will be advised to do Doctor's degree as this will help in future benefits.

Alternatively 40 years can be taken as 39 years as doctor's degree will take one year to complete and and after that only Jessica can start earnings.

Suppose Jessica will get job immediately after the degree in this case as well.