A college graduate earns about $1,500 per month more than someone that only has a high...

A college graduate earns about $1,500 per month more than someone that only has a high school diploma. If a “working life” starts next month and lasts 45 years, how much is a college degree worth today if market interest rates are 3.91% APR, compounded monthly?

Expert Solution

Given,

Monthly earning = $1500

Number of years = 45 years

APR = 3.91% or 0.0391

Solution :-

Monthly rate (r) = 0.0391/12 = 0.0032583333

Number of months (n) = 45 years x 12 = 540

Now,

Present value = monthly earning/r x [1 - (1 + r)^-n]

= $1500/0.0032583333 x [1 - (1 + 0.0032583333)^-540]

= $1500/0.0032583333 x [1 - (1.0032583333)^-540]

= $1500/0.0032583333 x [1 - 0.17262396294]

= $1500/0.0032583333 x 0.82737603706 = $380889.23

So, college degree worth today is $380889.23

jeff jeffy answered 2 years ago

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