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AleksAgata [21]
3 years ago
8

A recent college graduate from Clayton State University has the choice of buying a new car for $33,500 or investing the money fo

r four years with an 11% expected annual rate of return. He has an investment of $41,000 in equities and bonds which yields 8% expected annual rate of return. If the graduate decides to purchase the car, the best estimate of the opportunity cost of that decision is
Business
1 answer:
Mandarinka [93]3 years ago
6 0

Answer:

$3,280

Explanation:

The annuity factor of 11% at four years will be;

annuity = (1 - 1 / (1 +r)^n ) / r

annuity = 3.102

P = Pmt * annuity

P = 41,000 * 3.102

P = 127,182

If college graduate decided to buy a car then the annual yield that he receives from the investment in bonds will be opportunity cost.

$33,500 * 8% = $3,280

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Earning after Interest, but before Tax                       123750

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