Consider John. He is trying to decide whether or not to enter a full-time MBA program. Currently, he works for IBM as a systems analyst earning $75,000 per year. With an MBA he could transfer to IBM’s finance division, starting at $110,000 per year. His wage increases as an analyst would just be at cost-of-living and would be 4% per year. His wage increases in the finance division would be 8% per year. The MBA is a two-year program and costs $15,000 per year. John’s time horizon is 6 years. (Assume for simplicity that expenses are due at the start of a year, but earnings flow in at the end of a year.)
a. Draw an age-earnings profile for John to represent these two alternatives.