Sharon Shay estimates that a college education has a $28,000 equivalent cost at

Question

Sharon Shay estimates that a college education has a $28,000 equivalent cost at graduation. She believes the benefits of her education will occur throughout the 40 years of employment. She thinks that during the first 10 years out of college her income will be higher than that of a non-college graduate by $3,000 per year. During the subsequent 10 years, she projects an annual income that is $6,000 per year higher. During the last 20 years of employment, she estimates an annual salary that is $12,000 above the level of the non-college graduate. If her estimates are correct, what rate of return will she receive as a result of her investment in a college education?

Explanation / Answer

investment = $28000
return during first 10 years = 3000 * 10 = 30,000
return during next 10 years = 6000 * 10 = 60,000
return during last 20 years = 12000 * 20 = 240,000
total return = 330,000
rate of return = ((Return - Capital) / Capital*no.of years) × 100% = (330,000 - 28,000)/28,000 * 40 = 10.7857* 100/40 = 26.96 %

rate of return = 26.96 %

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