Tutor profile: Jasper P.
What is the opportunity cost of going to college?
The opportunity cost is defined as what you could have gained by choosing another alternative. In this case, what you could have gained by not going to college, under one alternative situation, is equal to the salaries you could have earned by taking a job right out of high school and the other benefits associated with taking a job. If the opportunity cost of going to college, under each of the possible alternative situations, is lower than what is perceived to be the benefits of going to college, then a rational person may say that going to college is the best option.
What is a Type I Error?
A Type I Error is the rejection of a true null hypothesis. We also call it false positive. For example, the probability of a medical test leading to the conclusion that a patient has a certain disease that he/she does not actually have can be interpreted as the Type I Error of that medical test.
How do we understand the concept called "Time Value of Money?"
We need to know the following three things when we are learning Time Value of Money: 1. If we know the rate of return of our money, we can determine the value of our money at some point in the future if we were to invest it. 2. If we know the rate of return and all our future cash flows, we can determine the current worth of those cash flows. 3. Future Value = Present Value at time t / (1+ rate of return)^t
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