Suppose a car dealership offers a low interest rate and a longer payoff period to customers or a high interest rate and a shorter payoff period to customers, and most customers choose the low interest rate and longer payoff period, does that mean that most customers want a lower interest rate? Explain.

Accepted Solution

Answer:No.Step-by-step explanation:No, it doesn't necessarily mean that most customers want a lower interest rate. The car dealership is offering a low interest rate associated with a longer payoff period or vice versa, this includes two variables: the payoff period and the interest rate. It is known that when you have a shorter payoff period your monthly pay offs are higher.According to the data, most people choose the low interest rate with the longer payoff period. This does not necessarily mean that they want a low interest rate but it could also mean that they just want a longer payoff period (because of their monthly income probably they can't afford a higher monthly payoff).Therefore we cannot conclude that they choose the first option because of the interest rate.