I had a homework problem regarding calculating a discounted present value. My solution is:
15000 * (1+.08)^1 + 15000 * (1+.08)^2 = $33 696
The question is this:
Laura has an undergraduate degree in economics and has been working as a utility rate analyst at the local electricity utility. If she continues on her present career path, the present value of her lifetime earnings is \$250,000. If she takes two years off and gets an MA degree in economics, the present value of her lifetime earnings is \$275,000. The annual cost of an MA degree in economics is \$15,000 and the interest rate is 8%. Assume that school fees are paid at the beginning of the year.
a.) Calculate the discounted (present value) cost of Laura's graduate degree in economics. (2 points)
The given solution is this:
Answer: $28, 889
I don't understand the logic of this question. To me, it seems the present value cost would be the cost of what I would pay if I was accounting for the interest of the tuition.