Question

If a checking account has an interest rate of 1% and a Treasury bill has an interest rate of 3%, the opportunity cost of holding cash in a checking account is: zero. 0.02%. 1%. 2%.

Answer 1

Answer:

2%

Explanation:

Data provided in the question

Interest rate on a checking account = 1%

Interest rate on treasury bill = 3%

So, the opportunity cost of holding cash in a checking account is

= Interest rate on treasury bill  - Interest rate on a checking account

= 3% - 1%

= 2%

Simply we deduct the checking account interest rate from the treasury bill interest rate so that the opportunity cost could come