/*! This file is auto-generated */ .wp-block-button__link{color:#fff;background-color:#32373c;border-radius:9999px;box-shadow:none;text-decoration:none;padding:calc(.667em + 2px) calc(1.333em + 2px);font-size:1.125em}.wp-block-file__button{background:#32373c;color:#fff;text-decoration:none} Problem 25 Make Sense? In Exercises 25-30, ... [FREE SOLUTION] | 91影视

91影视

Log out

Learning Materials

Features

Discover

Chapter 8: Problem 25

Make Sense? In Exercises 25-30, determine whether each statement makes sense or does not make sense, and explain your reasoning. If I purchase a car using money that I've saved, I can eliminate paying interest on a car loan, but then I have to give up the interest income I could have earned on my savings.

Short Answer

Expert verified
The statement makes sense. The purchasing of a car using saved money does eliminate the need to pay interest on a car loan. However, it means giving up the opportunity of earning interest on those savings which is known as opportunity cost in financial terms.

Step by step solution

01

Meaning of the statement

Read and interpret the statement: 'If I purchase a car using money that I've saved, I can eliminate paying interest on a car loan, but then I have to give up the interest income I could have earned on my savings.' This is suggesting that using saved money to buy a car, saves on loan interests but foregoes possible interest earned.
02

Does the statement make sense

Determine whether the statement is valid or not. In financial theory, the statement makes sense. Using saved money to purchase something means you won't have to borrow money and pay any interest on a loan. However, this decision leads to the opportunity cost of losing out on any potential interest that could be earned from these savings had they been invested or saved.
03

Explain the reasoning

The reasoning behind the validity of the statement lies in the basic financial principle of opportunity cost. Every decision to spend money could potentially have an opportunity cost if that money could have otherwise been used to earn more money in return. So in this case, the opportunity cost is the foregone interest that could have been earned if the money remained in savings instead of being used to buy a car.

Unlock Step-by-Step Solutions & Ace Your Exams!

  • Full Textbook Solutions

    Get detailed explanations and key concepts

  • Unlimited Al creation

    Al flashcards, explanations, exams and more...

  • Ads-free access

    To over 500 millions flashcards

  • Money-back guarantee

    We refund you if you fail your exam.

Over 30 million students worldwide already upgrade their learning with 91影视!

One App. One Place for Learning.

All the tools & learning materials you need for study success - in one app.

Get started for free

Most popular questions from this chapter

In Exercises 1-10, use $$ P M T=\frac{P\left(\frac{r}{n}\right)}{\left[1-\left(1+\frac{r}{n}\right)^{-n t}\right]} $$ Round answers to the nearest dollar. Suppose that you borrow \(\$ 10,000\) for four years at \(8 \%\) toward the purchase of a car. Find the monthly payments and the total interest for the loan.

Make Sense? In Exercises 23-26, determine whether each statement makes sense or does not make sense, and explain your reasoning. There must be an error in the loan amortization schedule for my mortgage because the annual interest rate is only \(3.5 \%\), yet the schedule shows that I'm paying more on interest than on the principal for many of my payments.

The price of a condominium is \(\$ 180,000\). The bank requires a \(5 \%\) down payment and one point at the time of closing. The cost of the condominium is financed with a 30 -year fixed-rate mortgage at \(8 \%\). a. Find the required down payment. b. Find the amount of the mortgage. c. How much must be paid for the one point at closing? d. Find the monthly payment (excluding escrowed taxes and insurance). e. Find the total cost of interest over 30 years.

What are the two components of liability coverage and what is covered by each component?

In Exercises 11-18, a. Determine the periodic deposit. Round up to the nearest dollar. b. How much of the financial goal comes from deposits and how much comes from interest?$$ \begin{array}{|l|l|l|l|} \hline \$ ? \text { at the end of each month } & 4.5 \% \text { compounded monthly } & 10 \text { years } & \$ 200,000 \\ \hline \end{array} $$
See all solutions

Recommended explanations on Math Textbooks

Discrete Mathematics

Read Explanation

Logic and Functions

Read Explanation

Decision Maths

Read Explanation

Applied Mathematics

Read Explanation

Calculus

Read Explanation

Mechanics Maths

Read Explanation
View all explanations

What do you think about this solution?

We value your feedback to improve our textbook solutions.

Study anywhere. Anytime. Across all devices.