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View Diary: Can someone explain to me why? (46 comments)

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  •  future value and opportunity cost (0+ / 0-)

    If your money sits in the bank and accrues for 5 years until you have enough to do what you want to do, will the interest that you have earned be more than you would have earned if you had borrowed the money, paid the interest, and conducted business and earned profits over those same five years.  There is a business concept of "future value", where you calculate what your money will be worth in five years, and another business concept of "opportunity cost" which talks about the cost of NOT doing something.  How much does it cost you to NOT purchase that extra inventory and sell it during Hot Friday, and leave your money sitting in the bank earning interest, instead.

    Money sitting in the bank is relatively low risk and safe, and therefore, it is not very profitable.  When people take more risks, they have a chance to earn more, but they also have a chance to lose more.

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