Question: you are considering enrolling in a oneyear training program which...
You are considering enrolling in a one-year training program
which costs $10,000 in tuition. This program promises to increase
your earnings by $20,000 for four years, starting the year after
the program. You currently earn $60,000 per year in your job, and
you would unable to work and enroll in this program at the same
time. (Note: first year earnings and tuition should not be
discounted; second year earnings should be discounted by one year;
a) If your discount rate is = 0.05, should you enroll in this program?
b) Instead, imagine your discount rate is = 0.20. Should you enroll in this program?
c) Now imagine you have a discount rate of = 0.20. Due to a recession, you are not certain you will be able to keep your $60,000/year job this year. In fact, you estimate that if you did not enter the training program, you would have a 40% chance of being unemployed this year and earning zero, and a 60% of being employed and earning $60,000. After this year, you will be employed for certainShould you enroll in this program?
d)Your result from part (c) helps to explain what phenomenon regarding college
enrollment rates that has been observed in the past?