Opportunity Cost Example

This screen allows you to input the data and the script appears on the page. Obviously the intent is to help our clients avoid unnecessary wealth transfers and put those opportunity dollars to work for them.

Script appears on the screen.

The interest is compounded monthly on this screen.  Assume the following inputs:

•expense = $10,000

•investment return = 10%

•years to project = 10

The interest rate is converted to a decimal and to a monthly rate.  To convert to decimal, divide by 100.  To convert to monthly divide by 12.  The following combines the pervious two steps and converts the "whole number annual interest" to both decimal and monthly:

10/1200 = .008333.

Adding one to the above number (so interest will compound) gives a monthly compounding rate of 1.008333%.

The projected opportunity cost is:

(10,000 * ((1.00833)^(10*12)))-10,000= $17,070

where

10 * 12 is 10 years converted to months and the ^ means raise to a power or exponent.

Notice the original amount invested ($10,000) is subtracted, so our opportunity cost only includes the compounded interest over the years.