John Invested $12,000 in the Stock of Hyper Cyber

question 4

Multiple Choice

John invested $12,000 in the stock of Hyper Cyber.Eight years later,Hyper Cyber's shares reached $125,000,but John held onto the shares in the belief that their price would double in the next five years.Unfortunately,Hyper Cyber did not double.Instead,the market value of John's shares today is $4,000.If the shares were sold and the proceeds invested in another investment,they would likely earn 5% per annum.Which of the following terms and values is correct?

• A)$125,000 is the opportunity cost of selling the shares today
• B)$12,000 is a sunk cost
• C)$125,000 is a sunk cost and is not relevant
• D)$6,250 is the opportunity cost of not selling the shares earlier
• E)None of the above

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Definitions:

Private Goods

Goods that are excludable and rivalrous in consumption, meaning their use by one individual prevents use by another.

Normal Goods

Goods for which demand increases as the income of the buyer increases and decreases as the income of the buyer decreases, showing a positive correlation between income changes and demand.

Overallocation

The process of assigning more resources to a project or sector than is available or sustainable, leading to inefficiencies.

Underallocation

A situation where resources are not distributed efficiently, resulting in potential benefits not being fully realized.