Question

You have saved $5,000 for a down payment on a new car. The largest monthly payment you can afford is $300. The loan will have a 8% APR based on end-of-month payments. What is the most expensive car you can afford if you finance it for 60 months?

Answer: $19,795.53

Please show all work and formulas used with a calculator, not excel.

Answer 1

Information provided:

Monthly payment= $300

Time= 60 months

Interest rate= 8%/12= 0.6667% per month

The question is solved by calculating the present value of the loan.

Enter the below in a financial calculator to compute the present value:

PMT= 300

N= 60

I/Y= 0.6667

Press the CPT key and PV to compute the present value.

The value obtained is 14,795.53.

Therefore, the most expensive car I can afford is $14,795.53 + $5,000= $19,795.53.

In case of any query, kindly comment on the solution.