Consider the imaginary country of Studentaria, a developing country where people live for four "years" and everyone must make decisions regarding their education. During age 1, everyone goes to primary school. At age 2, they can decide whether to go to secondary school or go to work. At age 3, if they went to secondary school they can decide whether to go to college or go to work. At age 4 everybody works. This translates into three alternative lifetime earnings options, summarized in the table below: Lifetime Earning Options (Studentaria $) Options Age 1 Age 2 Age 3 Age 4 A. Primary 400 600 800 school B. Secondary 1200 1700 School 4000 C. College (1) Consider Susan, a secondary school graduate who must decide whether to invest in a college education or enter the job market. College costs $800, but the government pays for a part of it, so that the cost to Susan is only $500. What is the private rate of return to investing in a college education for Susan? (Remember that Susan makes her decision at age 3)

Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
icon
Related questions
Question
100%
Q. 4
Consider the imaginary country of Studentaria, a developing
country where people live for four "years" and everyone must
make decisions regarding their education. During age 1.
everyone goes to primary school. At age 2, they can decide
whether to go to secondary school or go to work. At age 3, if
they went to secondary school they can decide whether to go to
college or go to work. At age 4 everybody works. This translates
into three alternative lifetime earnings options, summarized in
the table below:
Lifetime Earning Options (Studentaria $)
Options
Age 1
Age 2
Age 3
Age 4
A. Primary
400
600
800
school
B. Secondary
1200
1700
School
4000
C. College
(1) Consider Susan, a secondary school graduate who must
decide whether to invest in a college education or enter the job
market. College costs $800, but the government pays for a part
of it, so that the cost to Susan is only $500. What is the private
rate of return to investing in a college education for Susan?
(Remember that Susan makes her decision at age 3)
Transcribed Image Text:Consider the imaginary country of Studentaria, a developing country where people live for four "years" and everyone must make decisions regarding their education. During age 1. everyone goes to primary school. At age 2, they can decide whether to go to secondary school or go to work. At age 3, if they went to secondary school they can decide whether to go to college or go to work. At age 4 everybody works. This translates into three alternative lifetime earnings options, summarized in the table below: Lifetime Earning Options (Studentaria $) Options Age 1 Age 2 Age 3 Age 4 A. Primary 400 600 800 school B. Secondary 1200 1700 School 4000 C. College (1) Consider Susan, a secondary school graduate who must decide whether to invest in a college education or enter the job market. College costs $800, but the government pays for a part of it, so that the cost to Susan is only $500. What is the private rate of return to investing in a college education for Susan? (Remember that Susan makes her decision at age 3)
Expert Solution
steps

Step by step

Solved in 2 steps

Blurred answer
Knowledge Booster
Loanable Funds Theory
Learn more about
Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.
Recommended textbooks for you
Essentials Of Investments
Essentials Of Investments
Finance
ISBN:
9781260013924
Author:
Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:
Mcgraw-hill Education,
FUNDAMENTALS OF CORPORATE FINANCE
FUNDAMENTALS OF CORPORATE FINANCE
Finance
ISBN:
9781260013962
Author:
BREALEY
Publisher:
RENT MCG
Financial Management: Theory & Practice
Financial Management: Theory & Practice
Finance
ISBN:
9781337909730
Author:
Brigham
Publisher:
Cengage
Foundations Of Finance
Foundations Of Finance
Finance
ISBN:
9780134897264
Author:
KEOWN, Arthur J., Martin, John D., PETTY, J. William
Publisher:
Pearson,
Fundamentals of Financial Management (MindTap Cou…
Fundamentals of Financial Management (MindTap Cou…
Finance
ISBN:
9781337395250
Author:
Eugene F. Brigham, Joel F. Houston
Publisher:
Cengage Learning
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Corporate Finance (The Mcgraw-hill/Irwin Series i…
Finance
ISBN:
9780077861759
Author:
Stephen A. Ross Franco Modigliani Professor of Financial Economics Professor, Randolph W Westerfield Robert R. Dockson Deans Chair in Bus. Admin., Jeffrey Jaffe, Bradford D Jordan Professor
Publisher:
McGraw-Hill Education