Your 18 year old friend is considering what to do with their working life until they retire at age 65. They've sought your advice.
For simplicity, ignore taxes and assume that wages will be paid annually in arrears and will be constant (zero growth). The abbreviation 'k' (Greek kilo) means thousands, so 1k is 1000.
Let the present be time zero (t=0) and the year that you retire be time 47 (t=47).
Your friend is deciding between working as a:
- Builder's apprentice for 2 years earning $20k pa (2 payments from t=1 to t=2 inclusive), then begining work as a builder for $90k pa (45 annual payments from t=3 to 47 inclusive);
- Retail shop salesperson for $50k pa (47 payments from t=1 to t=47 inclusive).
You estimate that the required return is 5% pa with either career, and that they're equally risky. The cashflows are shown below:
|Career Choices and Cash Flows|
Which of the following statements is NOT correct? Comparing the two alternatives, being a builder compared to a retail salesperson, the: