You have invested $1,000 in a stock whose price is increasing at 10 percent a year. Your stock broker, who is never wrong, recommends a stock rising at 20 percent a year. Assuming the broker earns 4 percent of the stock's value on any purchase or sale of the stock, should you take her recommendation?

You will earn $200 a year if you take the recommendation. This exceeds the opportunity cost: $100 forgone on the current stock, $40 to the broker when you sell the current stock, and $40 when you buy the new stock, for a total of $180 . You gain $20, or 2 percent additional profit on your $1,000.