You win $100 in a basketball pool. You have a choice between spending the money now or putting it away for a year in a bank account that pays 5 percent interest. What is the opportunity cost of spending the $100 now?
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Interest Rate is the fraction of the principal amount that a lender of money charges or takes for the principal loan amount from the receiver. It is also used in the case of savings deposits in banks where the depositor gets the payment from the bank. The payment is a fraction of the total deposit, which the bank determines.