At the peak of the financial crisis, you had lost 40% of your stock holdings, leaving you with stocks with $10,000. You asked your family for advice on what to do with your money. Your mother recommended that you buy property at prices that were at record lows, entering a potential of 25% over the next year, if the property market recovered. Your sister your sister recommended that you withdraw your money and invest it in a 12 month bank deposit, which pays 5% per annum. Your aunt recommended that you withdraw your money and keep it locked up in your safe.
a) If you decided to follow your mother’s advice, what is the opportunity cost of this choice? Explain
b) If you decided to follow your aunt’s advice, what is the opportunity cost of this choice? Explain