The Authors Note That an Appropriate Discount Rate for Most

question 78

Multiple Choice

The authors note that an appropriate discount rate for most U.S. households is near 5%. However, suppose you are considering the decision to attend graduate school, and you already have large credit card balances from your undergraduate years. If you decide to use a higher discount rate (e.g., 10%) to reflect your higher opportunity cost of money, what impact does this change in the discount rate have on the net present value of a graduate degree?

• A) Increases NPV
• B) Decreases NPV
• C) NPV would not change as long as we use nominal costs and returns.
• D) NPV may increase or decrease, and we cannot determine the direction of change without more information.

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