If Frank is indifferent between receiving $1,000 today and $1,100 in one year, his opportunity cost is approximately
A)1.10%.
B)10%.
C)110%.
D)100%.

Question

Quizplus · Accepted Answer

Frank is indifferent between receiving $1,000 today and $1,100 in one year, which means he values the present and future amounts equally. Therefore, the opportunity cost of choosing $1,000 today is the interest rate he could earn if he chose to invest that money for one year. This can be calculated as the difference in value between the two options ($1,100 - $1,000 = $100) divided by the value of the current option ($1,000), which equals 0.10 or 10%. Therefore, if Frank chooses to receive $1,000 today, his opportunity cost is approximately 10%.

If Frank Is Indifferent Between Receiving $1,000 Today and $1,100