Question

An economist makes an assumption that each additional year of education causes future wages to rise by 7 percent. In this​ model, if a person with 12 years of education makes ​$21 000 per​ year, then a person with 4​-year college degree would earn ​? per year.​ (Round your intermediate calculations to two decimal​ places.)

Answer 1

Wage year 4= $12222.19

Step-by-step explanation:

Giving the following information:

Each additional year of education causes future wages to rise by 7 percent.

A person with 12 years of education makes ​$21 000 per​ year.

A person with 4 years of education=$?

We will use the present value formula to calculate the wage in year 0. Then with the final value formula calculate the year 4 wage.

PV= FV/[(1+r)^n]

FV=final value at t time

r= rate

n= period of time

PV= 21000/(1,07^12)= $9324. 2511

Final Value= PV*(1+r)^t

Final Value year 4= 9324.2511*(1,07^4)= $12222.19