Question

Inflation = 3%,Opportunity cost=3%.How that affects our invesmtent decision?

Answer 1

Inflation = 3%

Opportunity Cost = 3%

Opportunity cost is the loss of 3% from other alternative when one alternative is chosen. Additionally there is inflation rate of 3% which means there is 3% fall in your purchasing capacity. If you invest wisely such that there is no opportunity cost from other alternative, inflation rate of 3% will leave you with no change in real purchasing capacity while if the money invested by you have opportunity cost of 3% and inflation rate of 3%, you will suffer from double loss.