QuestionJuly 15, 2025

If the Sterlings could earn a 5% annual return by investing 150,000 what would be the opportunity cost of paying off their 150,000 mortgage instead? The potential return they could have earned by investing that money elsewhere The ability to use the money to upgrade their house or buy a vacation home The amount of interest they will save by paying off the mortgage The satisfaction of knowing they are debt-free

If the Sterlings could earn a 5% annual return by investing 150,000 what would be the opportunity cost of paying off their 150,000 mortgage instead? The potential return they could have earned by investing that money elsewhere The ability to use the money to upgrade their house or buy a vacation home The amount of interest they will save by paying off the mortgage The satisfaction of knowing they are debt-free
If the Sterlings could earn a 5%  annual return by investing 150,000 what would be the opportunity cost of paying off their 150,000 mortgage instead?
The potential return they could have earned by investing that money elsewhere
The ability to use the money to upgrade their house or buy a vacation home
The amount of interest they will save by paying off the mortgage
The satisfaction of knowing they are debt-free

Solution
4.5(242 votes)

Answer

\7,500 Explanation 1. Calculate potential investment return The opportunity cost is the potential return from investing. Calculate it using **Future Value formula**: FV = PV \times (1 + r)^n. Here, PV = 150,000, r = 0.05, and n = 1 year. 2. Compute future value FV = 150,000 \times (1 + 0.05)^1 = 150,000 \times 1.05 = 157,500. 3. Determine opportunity cost Opportunity cost is the difference between future value and initial amount: 157,500 - 150,000 = 7,500.

Explanation

1. Calculate potential investment return<br /> The opportunity cost is the potential return from investing. Calculate it using **Future Value formula**: $FV = PV \times (1 + r)^n$. Here, $PV = 150,000$, $r = 0.05$, and $n = 1$ year.<br /><br />2. Compute future value<br /> $FV = 150,000 \times (1 + 0.05)^1 = 150,000 \times 1.05 = 157,500$.<br /><br />3. Determine opportunity cost<br /> Opportunity cost is the difference between future value and initial amount: $157,500 - 150,000 = 7,500$.
Click to rate:

Similar Questions