Question

Melinda can take $500 today, or she can wait 1 year and receive $550. The good news is that Melinda does not need the money, so either way the money is a bonus. If she takes the money today, she’ll put it in the bank and receive a 3% rate of return (so she would have a total of $515 a year from now). If Melinda does, in fact, take the $500 today, you could say that:

Answer 1

Answer:

Assuming Melinda is a rational person which maximize his returns:

She has a project which yields more than the oppportunity cost of 10%

Assuming is not:

it will place it on the bank, generating 15 interest revenue from the accounting point of view

and lossing 35 dollars from the economic point of view.

Explanation:

She could earn 50 dollars in a year (550 - 500)

from the 500 initial invesment

this rate is: 50 / 500 = 10%

That will be the opportunity cost rate for Melinda.

If she takes the money today it will be because there is a potential project which yields more than this.

She will not put it in the bank as it will yield lower than 10%