When an individual obtains a car loan and makes all of the regular monthly payments, the sum of the payments made will exceed the purchase price of the car. This is due primarily to the core principle:
A) risk requires compensation.
B) information is the basis for decisions.
C) markets determine prices and allocate resources.
D) time has value.

Question

Quizplus · Accepted Answer

The reason the sum of the payments made on a car loan exceeds the purchase price of the car is because of the time value of money. The borrower is paying interest on the loan, and over time, the interest compounds, increasing the total amount of money that must be paid back. This is why it is important to consider the interest rate and the length of the loan when taking out a car loan or any other type of loan.

When an Individual Obtains a Car Loan and Makes All