Suppose you can receive an interest rate of 5 percent on a certificate of deposit (CD) at a bank that is charging borrowers 10 percent on new car loans. Which one of the following choices does not explain why you might be unwilling to loan money directly to someone who wants to borrow from you to buy a new car, even if that person offers to pay you an interest rate higher than 5 percent?
A. Your risk will be higher when the funds are not diversified among different investment alternatives.
B. Your funds would not be liquid.
C. You are better at assessing risks than the usual financial institutions.
D. You have to spend time and incur expense to determine whether or not the borrower is likely to repay the loan.
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