Question

Suppose you have data on students and their teachers linked to student earnings later in life....

Suppose you have data on students and their teachers linked to student earnings later in life. You estimate that having a teacher for one year with one standard-deviation higher value-added increases a student's annual earnings from age 20 to 70 by $125 per year. What is the approximate present discounted value at age 20 of the increase in earnings generated for a class of 25 with a discount rate of 0.02?

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Answer #1

answer:

present discounted value can be calculated using the formula

PV=FV(1+i)^-n

here PV -PRESENT VALUE

FV= FUTURE VALUE=125

i=interest or discounted rate=0.02

n=no of years=20

so by calculating we get

PV=$125(1+0.02)^-20

PV=$125(1/1.02^20)

=$125(1/1.485)

=$125(0.673)

=$84.175

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