Kelly has decided to start his own business giving sailing lessons. To purchase equipment for the business, Kelly withdrew $1,000 from his savings account, which was earning 3% interest, and borrowed an additional $2,000 from the bank at an interest rate of 7%. What is Kelly's annual opportunity cost of the financial capital that has been invested in the business?
A)$30
B)$140
C)$170
D)$300

Question

Quizplus · Accepted Answer

The opportunity cost for the $1,000 withdrawn from the savings account is the interest that money would have earned, which is $1,000 * 3% = $30. The cost of borrowing $2,000 from the bank is $2,000 * 7% = $140. Therefore, the total annual opportunity cost is $30 + $140 = $170.

Kelly Has Decided to Start His Own Business Giving Sailing