Question

You win a lottery of Rs.1,000,000/-, you have a choice between spending the money now or putting it in a bank account for 5 years that pays you 5% per annum. Calculate the opportunity cost of spending money now?

Answer 1

Opportunity cost is the cost incurred by not investing the money which corresponds to the interest forgone.

Simple Interest= Principle × Rate × Time

1000000× 0.05× 5= Rs 250000