Andy Would Like to Buy a New Car but Must

question 44

Multiple Choice

Andy would like to buy a new car but must complete a two-year commitment to the Peace Corp before he will drive the new car.The current price of the car Andy wants to buy is $32,000,and the dealer expects the price of a similar new car to be $35,000 in two years.If Andy can earn an annual interest rate of 4% on his money,should he buy the car now or wait for two years? Why? Note: Storage costs if Andy purchases the car are $0.Please limit your considerations to the factors offered in the answer choices.

• A)Buy now because if Andy invests the $32,000 today it will only increase in value to $34,611,and this is less than the cost of his desired new car in two years.
• B)Andy is indifferent because his $32,000 investment will be worth exactly $35,000 after two years.
• C)Buy in two years because at $35,000 the car will cost less than the $36,385 Andy will have after investing the money for two years.
• D)Buy in two years because $35,000 is a "real deal" for the car Andy wants.

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Definitions:

Interpersonal Relations

The interactions and relationships between two or more people.

Descriptive Norm

Socially accepted behaviors that individuals are expected to conform to in a specific context, based on the observed actions of others.

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Pluralistic Ignorance

Pluralistic ignorance describes a situation where a majority of group members privately reject a norm, but assume incorrectly that most others accept it.