6. According to payscale.com, the average salary for a 2015-2016 graduating Econ

Question

6. According to payscale.com, the average salary for a 2015-2016 graduating Economics major is $52,100, whereas the average Accounting major will make $46,900. Suppose you graduate when you are 22 and will retire when you are 67 (the standard retirement age for college graduates in the United States, about 45 years of work). Assuming your wages do not grow over time, ignoring inflation, and we discount the future at 3.0 percent, what would be the present value of the lifetime income for each major? What would probably change these values "in real life"?

Explanation / Answer

Economics majors:

Payment each year = 52100$

N= 45

I/Y = 3

When calculating the present value use formulae

PV = 52100/(1.03) + 52100/(1.03)^2......+ 52100/(1.03)^45= 1277424.92$

Alternatively we can use financial calculator also.

Accounts major:

Payment= 46900$

PV= 1149927.62$

In real life Inflation adjustment would be a major factor that would change these values.

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