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:

Fixed Costs

Costs that remain constant irrespective of the level of production or sales, including expenses like rent, salaries, and insurance.

Variable Cost

Expenses that vary depending on the amount of products or services a company generates.

Fixed Costs

Expenses that do not vary with the volume of production or sales, such as rent, salaries, and insurance premiums.

Cash Flow

The full measure of money movement into and out of an organization, primarily altering its liquidity status.