This is a Practice Question for my Econ class so the answer is provided. The problem I'm having is the IRR Function returns #NUM and by all accounts, it is because I did not enter an initial investment amount as I have none.

I have tried to use the ($475)* as an initial cost but I get -3.41%, which is incorrect.

In order for me to derive an 8.3% IRR, I would have to input an initial investment of ($398) of which I have no idea WHERE that would come from.

EXTRA PRACTICE #1: Investing in school

Consider an individual who lives for two periods. In the first period, the individual may either work or go to school (but not both). In the second period, the individual will work regardless of what was done in the first period. If the individual foregoes schooling and decides to work, she will earn $200 in period 1 and $250 in period 2. If she decides to get an education in the first period, her wage in period 2 will be $575. The direct cost of schooling in period 1 is $100.

Q1: If the individuals discount rate is 10%, will she work or go to school in the first period if her utility is a function of income only?

A1: She will not go to school

Q2: Calculate the internal rate of return.

A2: 8.3%

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