Suppose that you have $900 and what to invest the money for one year. There are three

Question:

Suppose that you have $900 and what to invest the money for one year. There are three existing options.

(a) The city of Rochester is selling bonds at $90 per unit. The bonds pay $100 at the end of one year when they mature (no other cash flows).

(b) Put the money under your mattress.

(c) The one-year interest rate of saving in the Chase Bank is 7 percent. Which one will you choose? What is the opportunity cost of your choice? Explain.

Opportunity Cost
Opportunity cost is the profit lost when one alternative is selected over another. The Opportunity Cost refers to the expected returns from the second best alternative use of resources that are foregone due to the scarcity of resources such as land,...