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.)

Wage year 4 = $12222.19

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