Without a business degree, you currently earn $35,000 per year. With a business degree you can earn $50,000 per year. Tuition for 4 years at the University of Utah is approximately $30,000.
(a) What is the rate of return on your investment? You can assume tuition is a one-time payment today, that you receive your first salary at the end of the first year, and that you will work for 40 years.
(b) Is this most likely a real return or a nominal return? Why? Think about the real application to this problem.
(c) Assuming these numbers are correct, what cost does this return calculation fail to account for that could significantly change the calculated return? Calculate the rate of return on the investment considering the significant cost that the calculation fails to account for using your own assumptions (and the TVM concepts we’ve learned so far).