Question

Suppose you've just inherited $66,000 from your rich Aunt. You're trying to decide whether to keep the $66,000 in cash so that you can use it for transactions or to deposit the entire amount in a savings account for one year. Suppose that the interest rate on a savings account is 2.5% per year. What would be the opportunity cost of holding the $66,000 as money

Answer 1

Answer:

Opportunity cost of holding the money = $1.650

Explanation:

Opportunity cost is the value of the next best alternative sacrificed in favour of a decision.

The opportunity cost of holding the money is the interest on deposit that would be have been earned should it be invested at the savings rate.

Interest on savings deposit = interest rate × deposit

                                         = 2.5%× 66,000= $1,650

Opportunity cost of holding the money = $1.650