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May 22, 2006
Investment in Education
We used the decision to go to college as an example of a typical investment decision. The costs are in the near future, and the benefits are spread over a much longer period. The decision to make the investment depends on the interest rate. (We did not do those calculations, but it is true.)
We focused on the effects of a growing benefit, assuming in this case that income will grow over time. We then discounted at a real interest rate, which made a large difference in the investment decision.
Posted by bparke at May 22, 2006 09:01 PM