Emily is considering two mutually exclusive financial options: (i)to deposit $4 000 in her bank's savings account that pays 4.6% annual interest, or (ii)to purchase a $4 000 one-year guaranteed investment certificate with a monthly interest rate of 0.3%. From an opportunity cost standpoint, by making the decision to deposit $4 000 in the bank account, Emily will
A)gain $37.6 by the end of the year.
B)lose $37.6 by the end of the year.
C)gain $57.6 by the end of the year.
D)lose $57.6 by the end of the year.
E)make zero economic profit.

Question

Quizplus · Accepted Answer

The annual interest earned on the savings account is $4,000 x 4.6% = $184. The annual interest earned on the GIC is $4,000 x 0.3% x 12 = $144. Therefore, Emily will lose $184 - $144 = $37.6 by depositing the money in the savings account.

Emily Is Considering Two Mutually Exclusive Financial Options: (I)to Deposit