Question 1
Situation: Sarah has $10,000 to either: pay off credit card debt (12% interest), invest in stock market (expected 10% return), or put in savings account (2% interest)
Considering opportunity costs, what is the best choice?
Paying off 12% debt provides guaranteed 12% 'return' (interest saved), which exceeds the expected 10% stock market return and is risk-free. The opportunity cost of not paying debt is 12% interest accrual.