Last month, you lent a work colleague $5000 to cover some overdue bills. He agre

Question

Last month, you lent a work colleague $5000 to cover some overdue bills. He agreed to pay you in 1 month with interest at 2% for the month, thus owing you $5100. Today, when the repayment is due, he asked you to extend the loan for another month and he would pay you the $5100 next month. In the meantime, you have had the offer to invest as much as you wish in an oil-well venture that is expected to pay 40% per year and a hot new IT stock that is estimated to return 39% the first year. If you let your colleague have another month, what is the opportunity cost of your decision? (Note: Express your answer in dollar and percentage amounts.) The opportunity cost is $ The opportunity cost in percentage is,mmmm

Explanation / Answer

Opportunity cost is 40/100 multiplied by 5100=2040.Note opportunity cost is maximum that can be earned in best possible alternative

In percentage terms it is 40%

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