# laptop-opportunity-cost by wanghonghx

VIEWS: 28 PAGES: 2

• pg 1
```									LAPTOP: Opportunity cost
A certain laptop costs \$700 (tax included). Assume you have a steady income of
\$50/month from your part-time job. Normally you spend \$25 each month on junk food,
clothes, or movie rentals. You save the other \$25.

Recently you bought a digital camera with your savings, so your savings balance (the
amount you have in the bank) is down to \$0.

You are feeling impatient. Now that you have a camera you would like to have a
computer of your own to download and share your pictures. You can get financing from
the store at an annual rate of interest of 19.99%.

If you take the \$25.00 you usually save each month and use it to make payments every
month, it will take you 39 months (3 years and 3 months) to pay off you’re the amount
you owe. You will pay \$250.56 in interest (financing charges). The total cost of the
principal and the compounded interest will be:

\$700 + 250.56 = \$950.56

1. What is the opportunity cost of the computer?

If you had saved the money in an investment savings account at a rate of \$25/month at
an annual rate of interest of 2.7% you would have saved \$911.36. The amount you
would have earned in interest would be approximately, \$36.

The total opportunity cost of the computer:

Principal      Interest       lost potential   Total
charges        savings and      opportunity
interest         cost
earnings
(\$911-\$700)
+ \$700         + \$256.00      + \$211           = \$1167

2. What other alternatives are available to you?

3. What is the opportunity cost of a cellphone that cost an average of \$25/month for the
same time period (assume you already own the cellphone).

Credit card interest calculator
http://www.controlcreditcarddebt.com/interest-calculator.html
Investment savings calculator
http://www.ingdirect.ca/en/save-invest/isa/index.html

```
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