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    Question

    Which of the following is a measure of the discount factor used to appraise capital investment decisions?

    A LIBOR rate Correct Answer Incorrect Answer
    B The current inflation rate Correct Answer Incorrect Answer
    C The current G-sec rate Correct Answer Incorrect Answer
    D The opportunity cost of capital of business Correct Answer Incorrect Answer
    E The opportunity cost of capital of all businesses in the same industry Correct Answer Incorrect Answer

    Solution

    Opportunity costis the potential loss from a missedopportunity—the result of choosing one alternative and forgoing another. For example, the opportunity cost of holding money rather than buying bonds or some other interest-bearing asset is the nominal interest that would otherwise be earned.

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