Your bank account pays 3% interest per year. You loan a friend $100 for one year at zero interest. Assuming the loan is paid on time the opportunity cost of the loan is

Question

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The opportunity cost of the loan is the interest that you could have earned if you hadn't loaned the money to your friend. In this case, that would be 3% of $100, which is $3. Therefore, the best choice is A. None of the other choices make sense because the opportunity cost is not equal to the value of the loan ($100), nor is it equal to the sum of the loan and the interest earned ($103). The loan did not cost you anything because there was no interest charged, so the answer cannot be D.

Your Bank Account Pays 3% Interest Per Year