Question

In: Economics

If engineering graduates’ average (starting) salaries were approximately $60,000 for the class of 2010. What will...

If engineering graduates’ average (starting) salaries were approximately $60,000 for the class of 2010. What will the average starting salaries amount be in 2020, if engineering starting salaries increase at the rate of (a) 2% per year, and (b) twice that rate or 4% per year?

Please no excel need to show work

Solutions

Expert Solution

(a)

Starting average salary of engineering graduates in 2010 = $60,000

Annual rate of increase in salary = 2% or 0.02

Time period = 10 years

Calculate the starting average salary of engineering graduates in 2020 -

Starting average salary = Starting average salary of engineering graduates in 2010 * [1 + Annual rate of increase in salary]time period

Starting average salary = $60,000 * [1 + 0.02]10 = $60,000 * [1.02]10 = $60,000 * 1.21899 = $73,139.4

Thus,

The average starting salary of engineering graduates in 2020 would be $73,139.4

(b)

Starting average salary of engineering graduates in 2010 = $60,000

Annual rate of increase in salary = 4% or 0.04

Time period = 10 years

Calculate the starting average salary of engineering graduates in 2020 -

Starting average salary = Starting average salary of engineering graduates in 2010 * [1 + Annual rate of increase in salary]time period

Starting average salary = $60,000 * [1 + 0.04]10 = $60,000 * [1.04]10 = $60,000 * 1.48024 = $88,814.4

Thus,

The average starting salary of engineering graduates in 2020 would be $88,814.4


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