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Elinore is asked to invest $4,500 in a friend's business with the promise that the friend will repay $4,950 in one year's time. Elinore finds
Elinore is asked to invest
$4,500
in a friend's business with the promise that the friend will repay
$4,950
in one year's time. Elinore finds her best alternative to this investment, with similar risk, is one that will pay her
$4,905
in one year's time. U.S. securities of similar term offer a rate of return of
7%.
What is the opportunity cost of capital in this case?
A.
10%
B.
11%
C.
9%
D.
7%
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