Suppose that you lend $1,000 to a friend and he or she pays you back one year later. What is the opportunity cost of lending the money?
A) the real interest rate that would have been earned on the money
B) There is no cost.
C) the nominal interest rate that would have been earned on the money
D) the implicit cost of the money

Question

Quizplus · Accepted Answer

The opportunity cost of lending the money is the real interest rate that could have been earned if the money had been invested in another opportunity. This represents the cost of foregone alternatives. The nominal interest rate does not account for inflation, which can erode the value of the money lent. The implicit cost of the money is a broader concept that includes both monetary and non-monetary costs, such as the time and effort spent managing the loan. However, in this context, the most relevant cost is the real interest rate that could have been earned if the money had not been lent to the friend.

Suppose That You Lend $1,000 to a Friend and He