Suppose you go to your local bank, intending to buya certificate of deposit with your savings. Explain whyyou would prefer this to offering a loan, at an interestrate that is higher than the rate the bank pays oncertificates of deposit (but lower than the rate the bankcharges for car loans), to the next individual who entersthe bank and applies for a car loan

Suppose you go to your local bank, intending to buya certificate of deposit with your savings. Explain whyyou would prefer this to offering a loan, at an interestrate that is higher than the rate the bank pays oncertificates of deposit (but lower than the rate the bankcharges for car loans), to the next individual who entersthe bank and applies for a car loan

Personal Finance

13th Edition

ISBN:9781337669214

Author:GARMAN

Publisher:GARMAN

Chapter5: Managing Checking And Savings Accounts

Section: Chapter Questions

Problem 5LTAI

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Concept explainers

Emergency Fund

The emergency fund is an amount that is kept aside to meet financial emergencies such as medical expenses and debt settlements. Emergency funds reduce the burden on people during their hardships. People save small portions of their earnings or paychecks as emergency funds to meet financial emergencies. Emergency funds should be saved or invested in such a way that they must be easily liquidated during emergencies. The main purpose of an emergency fund is its availability when required.

Question

Suppose you go to your local bank, intending to buy
a certificate of deposit with your savings. Explain why
you would prefer this to offering a loan, at an interest
rate that is higher than the rate the bank pays on
certificates of deposit (but lower than the rate the bank
charges for car loans), to the next individual who enters
the bank and applies for a car loan

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