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Homework answers / question archive / If Ahmad can buy a car today for $ 5000, the car will worth $ 10,000 in extra income to Ahmad next year because he will use the car to do his business

If Ahmad can buy a car today for $ 5000, the car will worth $ 10,000 in extra income to Ahmad next year because he will use the car to do his business

Economics

If Ahmad can buy a car today for $ 5000, the car will worth $ 10,000 in extra income to Ahmad next year because he will use the car to do his business. Should Ahmad borrow the $ 5000 for the loan shark at 90% interest if no one else could lend this money to Ahmad? Will Ahmad be better or worse off as the result of borrowing the money from the loan shark? Why do loan shark care less about moral hazard when lending money compared to commercial banks? Can you make a case for legalizing loan shark? Note: Your answers should be detailed with proper references.

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Answer: with explantation

90 % of $5,000 is= $4,500

total spend in a year = $9,500.

if assume 1 year ( with compounding per month)

per month Payemnt = $646.39.

Total of debt for 1 year ( $7,756.67)

On the basis of the above calculation, it would not be a wise decision to take a loan from a loan shark at 90 percent rate of interest.

legalizing loan shark can be feasible in the following cases.

1. Weak Banking System.

2. When a person did not have any collaterals.

3. There are no microfinance institutions in the country.

4. When a person is in emergency situations like Health , Marriage expenditures

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