Suppose That You Have Saved $100

question 16

Essay

Suppose that you have saved $100. You can spend it today or you can put it in your savings account for a year and earn 5% interest. What is the opportunity cost of spending the money today?

---

Definitions:

Inflation Rate

The speed at which the average price of goods and services increases, leading to a decrease in buying power.

Pure Rate

Pure rate, in finance, could refer to the actual interest rate without the influence of inflation or to the risk-free rate of return, which is the theoretical return of an investment with zero risk.

Dividend

A portion of a company's earnings distributed to shareholders, usually in the form of cash or additional shares.

PE Ratio

Price-to-Earnings Ratio; a valuation measure for a company comparing its current share price to its per-share earnings.