An investor has her money segregated into checking, savings, and investments. The allocation among the categories is subjective,
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The concept her is "the real cost of something is what you must give up to get it"
<u>Explanation:</u>
As we come across trade-offs it is a necessary to make decisions on the next best alternatives which is the principle of opportunity cost.
Opportunity cost is the benefits and advantages that a business entity or an individual loses on choosing one alternative decision over the other. It is calculated with the help of the following formulas,
Or,
In economical terms, choices are measured in terms of opportunity costs.