Chapter 5, Problem 18AA

To determine

To explain: The expenses included in the cost of buying a car.

Explanation of Solution

The expenses that are included in the cost of buying the car are down-payment, monthly payment, and interest payment. Here, the down-payment is the amount that is paid at the time of buying the car or it is the initial amount paid to buy the car. Generally, the magnitude of the initial amount depends on the buying capacity of consumers. If the consumer has good purchasing power then the consumer will prefer to pay a large amount of down payment. Apart from the down-payment, the consumer has to pay the rest amount on an installment basis with the interest rate that is charged on the amount. Thus, the total cost of the car includes the amount of down-payment, monthly installment, and the interest rate.