Question: The question refers to the internal rate of return developed in the math supplement. Consider an individual who has considered to enter medical school but is not sure whether to specialize. Physician education requires 4 yrs of medical school for general practice, and 3-8 yrs of additional training (say 5 yrs on average) to be a specialist. In 2004, the average income for physicians with less than 2 yrs of experience was $141, 912 for general practice, $173,922 for psychiatrists, and $228, 839 for general surgery. Malpractice premiums averaged $15,389, $9,000, and $37,696 for these three practice areas, respectively. In addition, average medical school tuition is $33,000 per year.

(A) Estimate the internal rate of return for the investment in each of the three practice areas? (Hints. Begin the IRR calculation from the time when the person has just completed the 4yrs of basic medical education. Excel provides an IRR function.)

(B) Discuss qualitatively any biases in the data that you used in the IRR calculations.

(C) Some of the doctors who undergo specialist training will fail to qualify. Discuss qualitatively how this would affect a person’s choice among the 3 practice areas.