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Lecture3_Problem - Lecture 3 Review Problem Lets rewind a...

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Lecture 3 Review Problem Let’s rewind a few years back. You are 18, and just graduated from high school. You are facing two alternatives: go straight to work, or go to college. Interest rate is 5 . 8269% continuously compounded. If you go straight to work, you will be able to put away $5 , 000 in a year into your savings account and grow this deposit by 2% every year thereafter. Your last deposit will be in 47 years, when you turn 65. If you decide to go to the university, you will have to pay tuition for four years while you are studying. You would go to an expensive school and pay $50 , 000 a year for tuition with the first payment in one year. After you graduate in four years, you’ll start working at a higher paying job that will allow you to save $15 , 000 in five years (when you are 23 years old), and this amount will grow by 3% thereafter. Your last deposit will be in 47 years, when you turn 65. 1. Is going to the university worth it?
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