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.

---

Definitions:

Encoding

The process by which information is transformed into a format that can be stored and used in memory.

Seriation

The cognitive ability to arrange objects in sequential order based on a particular characteristic, such as size, color, or age.

Mainstreaming

An educational strategy that involves placing students with special needs in general education classrooms, promoting their inclusion in typical academic and social activities.

Encoding

The process of converting information into a form that can be stored in memory.