oanne has just completed high school and is trying to determine whether to go to junior college for two years or go directly to work. Her objective is to maximize the savings she will have in the bank five years from now. If she goes directly to work, she will earn $22,000 per year for each of the next five years. If she goes to junior college, for each of the next two years she will earn nothing—indeed, she will have to borrow $6,000 each year to cover tuition and books. This loan must be repaid in full three years after graduation. If she graduates from junior college, in each of the subsequent three years, her wages will be $41,000 per year. Joanne’s total living expenses and taxes, excluding tuition and books, equal $15,000 per year. Instructions: Enter your responses as whole numbers. a. Suppose, for simplicity, that Joanne can borrow and lend at 0 percent interest. On purely economic grounds, should she go to junior college or work? After 5 years, the total value of Joanne's savings would be $35,000 if she goes directly to work and $___________ if she goes to junior college. So, Joanne should go to junior college . b. Does your answer to part a change if Joanne can earn $24,000 per year with only a high school degree? Yes . Joanne should go to work, since the total value of Joanne's savings would be $45,000 if she goes directly to work and $__________ if she goes to junior college. c. What if Joanne’s tuition and books cost $7,000 per year? Joanne should go to (Click to select) work junior college , since the total value of Joanne's savings would be $__________ if she goes directly to work and $____________ if she goes to junior college.
Joanne has just completed high school and is trying to determine whether to go to junior college for two years or go directly to work. Her objective is to maximize the savings she will have in the bank five years from now.
If she goes directly to work, she will earn $22,000 per year for each of the next five years. If she goes to junior college, for each of the next two years she will earn nothing—indeed, she will have to borrow $6,000 each year to cover tuition and books. This loan must be repaid in full three years after graduation. If she graduates from junior college, in each of the subsequent three years, her wages will be $41,000 per year. Joanne’s total living expenses and taxes, excluding tuition and books, equal $15,000 per year.
Instructions: Enter your responses as whole numbers.
a. Suppose, for simplicity, that Joanne can borrow and lend at 0 percent interest. On purely economic grounds, should she go to junior college or work?
After 5 years, the total value of Joanne's savings would be $35,000 if she goes directly to work and $___________ if she goes to junior college. So, Joanne should go to junior college .
b. Does your answer to part a change if Joanne can earn $24,000 per year with only a high school degree?
Yes . Joanne should go to work, since the total value of Joanne's savings would be $45,000 if she goes directly to work and $__________ if she goes to junior college.
c. What if Joanne’s tuition and books cost $7,000 per year?
Joanne should go to (Click to select) work junior college , since the total value of Joanne's savings would be $__________ if she goes directly to work and $____________ if she goes to junior college.
d. Suppose that the interest rate at which Joanne can borrow and lend is 10 percent per year, but she can earn $22,000 with a high school degree. Her tuition and books at college cost $6,000 and her living expenses are $15,000 per year. Savings are deposited at the end of the year they are earned and receive (compound) interest at the end of each subsequent year. Similarly, the loans are taken out at the end of the year in which they are needed, and interest does not accrue until the end of the subsequent year. Now that the interest rate has risen, should Joanne go to college or go to work?
Joanne should go to work , since the total value of Joanne's savings would be $__________ if she goes directly to work and $__________ if she goes to junior college.
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