Question

You have saved $3,000 for a down payment on a new car. The largest monthly payment...

You have saved $3,000 for a down payment on a new car. The largest monthly payment you can afford is $300. The loan will have a 10% APR based on end-of-month payments.

What is the most expensive car you can afford if you finance it for 48 months? Do not round intermediate calculations. Round your answer to the nearest cent.

I am doing this assignment all in excel. The book mentioned to use the "PV" function, but I am stuck trying to figure out what to do with the $3000 downpayment when using the PV function to find out the answer. Telling me how to solve this via excel would be greatly appreciated!

Homework Answers

Answer #1

Monthly payment = $300

APR = 10%, so monthly rate = 0.8333%

Finance for 48 months = 4 years (48/12)

So, the maximum car which you can afford if you can finance it for 48 months or 4 years,

PVFA =

= 300(1-(1+0.008333)^-48/0.008333

=$11,829.34

Also, we will be paying downpayemt of $3000 today.

So, maximum value of car = $3000 + $11,828.45

= $14,828.45

In excel we will use the following formula:-

=PV(0.00833,48,300,1,0)

From this we will get the PV of annuity due.

In that we will just add the down payment which is given in year 0.

And we will get the answer as $14,828.45.

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