When Borrowing Money to Purchase an Automobile,Raul Has the Choice

question 125

Multiple Choice

When borrowing money to purchase an automobile,Raul has the choice between a fixed nominal interest rate or adjustable nominal interest rate loan.Typically the adjustable rate loans start with a lower rate than the fixed rate loans.Given that,under what circumstances would Raul most likely want to borrow money at the higher fixed rate?

• A) When he expects the inflation rate to rise
• B) When he expects the inflation rate to decrease
• C) When he expects the inflation rate to remain unchanged
• D) When he expects the price level to remain stable
• E) When he expects the government to act to lower the inflation rate

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Definitions:

Purchase Method

An accounting method used to consolidate the financial statements of a parent company and its subsidiaries, reflecting the purchase of one entity by another.

Statutory Consolidation

The process of combining the financial statements of a group of companies into one, as required by law, to present the financial condition and operations of the group as a single entity.

Legal Corporations

Business entities that are legally recognized as individual entities with rights and liabilities distinct from those of their members or shareholders.

Divisions

Separate units or branches within a company or organization, often specializing in different products or services.