Question

Erik bought a savings bond. He could have invested in a mutual fund and earned 2 percent more. The 2 percent he could have earned is the _____.

A. opportunity cost
B. rate of return
C. liquidity
D. diversification

Answer 1

The answer is liquidity.

Step-by-step explanation:

I just had this on a test...

Answer 2

Option (A) is correct.

Step-by-step explanation:

The opportunity cost refers to the cost of selecting the other alternative or the benefit that is foregone or sacrificed by choosing some other alternative. In our case, the opportunity cost of buying the saving bond is the 2 percent extra return that could have been earned by investing in a mutual fund.

Here, the extra interest rate is foregone by choosing savings bond.