What is the opportunity cost of holding $1 comma 500 in cash if the relevant interest rate is 10 percent?

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Business

Lilyana Glover

14 April, 23:32

What is the opportunity cost of holding $1 comma 500 in cash if the relevant interest rate is 10 percent?

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Miley Collier · Answer 1

Answer: $150

Explanation: Opportunity cost can be defined as the cost of loosing profits by not choosing the second best alternative over the best alternative. Every resource can be used for different alternatives and when an individual chooses one of those many alternatives, the potential loss of gain from the rejected ones is opportunity cost.

In the given case, the individual is holding the money in cash for use but if he had deposited it in a bank he could be eligible for interest. The amount of interest that he looses is his opportunity cost.

Thus, the amount of opportunity cost is $ 150.