Asked by Langle Eunice on Apr 27, 2024
Verified
If the market interest rate equals 8 percent,the opportunity cost of the last new investment project undertaken would approximately be equal to _____.
A) zero percent
B) 4 percent
C) infinity
D) 8 percent
E) 16 percent
Market Interest Rate
The prevailing rate at which borrowers can obtain loans and lenders can offer funds in the financial market.
Opportunity Cost
The cost of foregone alternatives, representing the benefits an individual, investor, or business misses out on when choosing one alternative over another.
Investment Project
A project involving the allocation of resources, such as time and money, with the expectation of generating future profits or benefits.
- Identify the effects of market interest rates on investment choices.
Verified Answer
JG
Jackie GibbsMay 01, 2024
Final Answer :
D
Explanation :
The opportunity cost of the last new investment project undertaken would approximately be equal to the market interest rate of 8 percent. This is because the cost of financing the project would be equal to the market interest rate, and the opportunity cost represents the return that could have been earned on the next best alternative investment. Choosing a rate lower than 8 percent would underestimate the true cost of the investment, and choosing a rate higher than 8 percent would overestimate the cost. Thus, the best choice is D.
Learning Objectives
- Identify the effects of market interest rates on investment choices.