LABOR ECONOMICS
Suppose you are 4 years away from retirement. You have the option of enrolling in a training program that takes 1 year to complete and costs $3,000. By enrolling in the program, you forgo 1 year of salary which would be $20,000. The benefit of enrolling in the program is that it increases your earnings after you complete the program. For every year you work you will earn an extra $9,000. If you enroll in the program, you immediately pay the costs, and then you have 3 years of work until you retire. If you don't enroll in the program you work for 4 years and then you retire. To simplify the calculation, assume that you get paid your salary in full at the beginning of each year. This means that if you decide to work all 4 years, you immediately get your first year's salary of $20,000, then you wait 1 year to get your second year's pay, you wait another year to get your third year's pay and you wait one more year to get your last year's pay. Assume that the interest rate is 10% per year. (2pts)
What is the present value of the costs of the training?
What is the present value of the benefits of the training?
Should you enroll in the program? Explain why or why not.
LABOR ECONOMICS
Suppose you are 4 years away from retirement. You have the option of enrolling in a training program that takes 1 year to complete and costs $3,000. By enrolling in the program, you forgo 1 year of salary which would be $20,000. The benefit of enrolling in the program is that it increases your earnings after you complete the program. For every year you work you will earn an extra $9,000. If you enroll in the program, you immediately pay the costs, and then you have 3 years of work until you retire. If you don't enroll in the program you work for 4 years and then you retire. To simplify the calculation, assume that you get paid your salary in full at the beginning of each year. This means that if you decide to work all 4 years, you immediately get your first year's salary of $20,000, then you wait 1 year to get your second year's pay, you wait another year to get your third year's pay and you wait one more year to get your last year's pay. Assume that the interest rate is 10% per year. (2pts)
What is the present value of the costs of the training?
What is the present value of the benefits of the training?
Should you enroll in the program? Explain why or why not.
