# hw3 - University of Illinois at Urbana-Champaign Professor...

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University of Illinois at Urbana-Champaign Professor Ron Laschever, ECON 440, Spring 2011 Assignment #3; Answer Guide Present Value of Human Capital The goal of this exercise is to compare the net present value of an investment in a MBA vs. Law degree, both at UIUC. Question A) Calculate the Net Present Value assuming you are about to start each program today (say, fresh out of college) and assume: 1) An MBA takes two years to complete. A Law degree takes 3 years to complete. 2) In each case you already have a 4-year degree, and would just complete the degree in allotted time (abstract away from the fact that some people are in a 5-year masters program, taking the Bar, etc., etc. etc.) 3) In either case you can assume that upon completing the degree you will have a raise of 3% per year. You may assume there will be no rise in tuition costs. 4) There are no income taxes, deductions, or any other types of taxes. You can ignore inflation. 5) Everyone upon graduation finds a job for sure (with probability 1). 6) The only direct cost is tuition (use the in-state-full-time-no-scholarship-rates) 7) For the interest rate r , use the 10-year US treasury note interest rate which many newspapers would have (state what it is, on what day you obtained the number, and from where)

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hw3 - University of Illinois at Urbana-Champaign Professor...

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