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    In finance, opportunity costs are used to measure the differences in returns between a chosen investment and one that is forgone. For example, consider a person who invests in a stock that returns a paltry 2% over the year. By placing his money in the stock, the investor gives up the opportunity to invest in another investment, such as a risk-free government bond yielding 6%. In this situation, the opportunity cost is 4%, or 6% - 2%.

    How is the opportunity cost 6 or -2 I DO NOT GET THIS :/
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    (Original post by girlwonder17)
    In finance, opportunity costs are used to measure the differences in returns between a chosen investment and one that is forgone. For example, consider a person who invests in a stock that returns a paltry 2% over the year. By placing his money in the stock, the investor gives up the opportunity to invest in another investment, such as a risk-free government bond yielding 6%. In this situation, the opportunity cost is 4%, or 6% - 2%.

    How is the opportunity cost 6 or -2 I DO NOT GET THIS :/
    Two investors, each with £100 to invest.
    One invests the £100 in stock, and receives £102 back at the end of the year.
    The other invests their £100 in a government bond, and receives £106 back at the end of the year.
    In investing in the weaker performing stock, the first investor has no freely available capital left, to invest in the better performing government bond. The opportunity cost is the difference between what might have been the return, and what was the actual return, hence 4%.
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    (Original post by DrSocSciences)
    Two investors, each with £100 to invest.
    One invests the £100 in stock, and receives £102 back at the end of the year.
    The other invests their £100 in a government bond, and receives £106 back at the end of the year.
    In investing in the weaker performing stock, the first investor has no freely available capital left, to invest in the better performing government bond. The opportunity cost is the difference between what might have been the return, and what was the actual return, hence 4%.
    Thanks for the reply.
    Thank you I do undestand this!

    It is the part where it says -2 or 6 I only get what you said and thought it was 4.
 
 
 
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