You withdraw some of your savings to invest in a new business venture.Which of the following statements is true?
A)The return you will earn from this new investment is your opportunity cost.
B)The interest rate you would have earned in the bank is higher than the return from this investment.
C)The return you expect to earn from this new investment must exceed your opportunity cost.
D)The return you expect to earn from this new investment must equal your opportunity cost.

Question

Quizplus · Accepted Answer

Opportunity cost is the next best alternative forgone when a choice is made. In this case, the opportunity cost is the return you would have earned if you had left your savings in the bank. Therefore, the return you expect to earn from the new investment must exceed the interest rate you would have earned in the bank, which represents your opportunity cost. Option C correctly states this requirement. Option A is incorrect because the return from the new investment is not the opportunity cost but the result of making the investment. Option B is incorrect because it assumes that the interest rate in the bank is always higher, which may not be true. Option D is incorrect because it suggests that the return from the new investment should be the same as opportunity cost, which is not necessary.

You Withdraw Some of Your Savings to Invest in a New