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9 July, 15:01

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.)

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  1. 9 July, 17:42
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    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
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