Question

Describe three different financial decisions and their opportunity costs.

Answer 1

Answer:

Going to college has an opportunity cost of not working or working less. Buying a car has an opportunity cost of not being able to save as much. Buying a house could have an opportunity cost of not being able to travel. Opportunity cost is the choice you give up when selecting something else.

Explanation:

Answer 2

Answer:(Answers may vary.)

At the beginning of the year, I received a bonus at work. I decided to invest the money. I had two options: invest the money in high-yielding bonds, or invest the money in US Treasuries. I decided to invest my money in High-yielding bonds. High-yielding bonds had a return of 10 percent, whereas the US Treasuries had a return of 5 percent. So, my opportunity cost was 5 percent. High-yielding bonds carry more risk, though, and I might have lost 2 percent instead of earning 10 percent. Treasuries have virtually no risk, but the expected return is a bit lower.

My cousin is a fashion designer. She currently works for a retail management firm and earns $59,400 per year. A famous company in the fashion industry offered her a job in Paris. They offered her $45,500 per year. She decided to take the job in Paris, because she will learn many new things and will be in the fashion hub of the world. The salary offered is lower than what she currently earns. However, she believes that the opportunity cost of not taking the job would involve losing future lucrative opportunities that are only available to those who work in famous fashion companies. The opportunity cost of taking the job in Paris is the increased salary she would have earned at her old job. Moreover, she has to find her own accommodations and make new friends in Paris. In the United States, she has her own apartment and many friends and relatives. Therefore, another opportunity cost of moving to Paris involves losing an apartment and moving away from many friends and relatives.

James is working for a well-known firm and earns a decent salary. He pays his rent and other expenses from his salary, and saves the remaining amount. However, he now wants to pursue a master’s degree. For this, he will have to quit his job to attend classes full-time for one year. So, he left his old job, where he had earned the highest amount available for someone with his education and experience. However, he believes that within a year of being hired in his new career, he will earn a pay raise of 5 percent. In five years, he would earn a promotion and another pay raise, this time of 12 percent. The opportunity cost is the loss of one year’s income for James. However, the opportunity cost of staying in his job includes the future pay raises plus the satisfaction of obtaining a job he loves.

Explanation: Plato answer