Sam Is Comparing the Costs of Two Loans

question 132

Multiple Choice

Sam is comparing the costs of two loans. One is due in one year and the other is due in four years. Both have the same stated rate of interest. Which of the following is true?

• A) The principal paid for the one-year loan will be lower than the principal paid for the four-year loan.
• B) The principal paid for the one-year loan will be higher than the principal paid for the four-year loan.
• C) The interest charges for the one-year loan will be lower than the interest charges for the four-year loan.
• D) The interest charges for the one-year loan will be higher than the interest charges for the four-year loan.
• E) The interest charges and principal payments cannot be compared for the two loans.

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Definitions:

Utilitarianism

A moral theory that advocates for actions that maximize happiness and well-being for the greatest number of people.

Liberalism

A belief system centered on the principles of freedom, the governed's agreement, and equal treatment under the law.

Libertarianism

A political philosophy that emphasizes freedom, autonomy, and voluntary association.

Diminishing Marginal Utility

An economic theory suggesting that the utility or satisfaction derived from consuming more of a good decreases with each subsequent unit.