Q4: LeJames Bond is considering foregoing his senior year at UW-Badgerville and
ID: 1155491 • Letter: Q
Question
Q4:
LeJames Bond is considering foregoing his senior year at UW-Badgerville and declaring himself eligible for the NBA draft. He anticipates a salary of $500,000 if he declares early, and estimates that if he stays for his senior year of college, his rookie salary would rise to $600,000 (because of additional experience and skill development during that extra college year). He is also aware of the NBA’s discussion about a rookie salary cap, which would occur with probability ½ and be set at $500,000. His opportunity cost rate of return (essentially his discount rate here) is 8% .
What should LeJames do? [Note that we are ignoring any other future salary considerations, we are only comparing first year salaries]
Not enough information to tell
Q5:
Over time, we’ve seen a dramatic reduction in the number of cities submitting final bids to host the Olympic games. Which of the following might NOT explain that development?
Planned infrastructure investments find alternative sources of funding once a host city’s bid is approved.
Q6:
Which of the following is the best example of the “backward bending” labor supply curve?
As tax laws have changed, Phil Mickelson has taken up residence in Florida.
He should declare early for the NBA draft.Explanation / Answer
LeJames Bond should stay at UW-Badgerville for his senior year and enter the NBA draft after that. The reason is that by staying back, he will still have a positive payoff of $10,000. Let us say that he stays back for senior year, in this case, his total payoff would be $600000*50% (probability of rookie salary cap not applicable) + $500000*50% (probability of rookie salary cap applicable) = $550000. Now, his final payoff would be $550000 - $500000*8% (opportunity cost) = $10000 Over time, we’ve seen a dramatic reduction in the number of cities submitting final bids to host the Olympic games. Which of the following might NOT explain that development? The correct answer would be: Planned infrastructure investments find alternative sources of funding once a host city’s bid is approved. Which of the following is the best example of the “backward-bending” labor supply curve? The answer is that as PGA tournament purses have increased, Tiger Woods has played fewer tournaments in any given year.
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