Suppose that you have $900 and want to invest the money for one year. There are three ex- isting options.
a. The city of Rochester is selling bonds at $90 per unit. The bonds pay $100 at the end of one year when they mature (no other cash flows).
b. Put the money under your mattress.
c. The one-year interest rate of saving in the Chase Bank is 7 percent.
Which one will you choose? What is the opportunity cost of your choice? Explain.