If a "working life" starts next month and lasts 45 years, how much is a college degree worth today if market interest rates are 4.14% APR, compounded monthly?

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 4.14% APR, compounded monthly?

Expert Solution

Number of months = 45 * 12 = 540

monthly rate = 4.14/12%

Monthly Amount = 1500

Today's worth = Present value of all the monthly payments discounted at monthly rate.

Today's Worth = 1500/(1+ 0.0414/12)^1 +1500/(1+ 0.0414/12)^2 +1500/(1+ 0.0414/12)^3 +1500/(1+ 0.0414/12)^4 +1500/(1+ 0.0414/12)^5 +1500/(1+ 0.0414/12)^6 +1500/(1+ 0.0414/12)^7 +1500/(1+ 0.0414/12)^8 +......... 1500/(1+ 0.0414/12)^539 +1500/(1+ 0.0414/12)^540

= 367084.89 Answer

jeff jeffy answered 2 years ago

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If a "working life" starts next month and lasts 45 years, how much is a college degree worth today if market interest rates are 4.14% APR, compounded monthly?

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