Question

Kevin borrows $12 000 to buy a new car. His car loan charges interest of 6.9% /a, compounded monthly. The loan is amortized over 3 years. Use the TVM Solver to determine his monthly payments. Create a revised budget to reflect this expense.

You will likely need to reduce some of Kevin’s expenses so that he can afford his car payments. Provide description of what was altered and why in the calculations section.

Answer 1

His monthly payment buying a new car would be $169.98. Below is the calculation:

Monthly interest rate=6.9%/12=0.58%

Tenure=3*12=36 month

His new monthly budget is given below:

Monthly income	Rent Expense	Miscellaneous Expense (Electricity, Phone, cable, internet, Food Expense)	Car Maintenance	Movie expense	Monthly Loan payment on Car Loan	Savings (Net income-Rent-Miscellaneous Expense-Car Maintenance-Movie expense-CAR EMI)
$2,235.00	$950.00	$700.00	$25.00	$120.00	$369.98	$70.02

As it's a new car he has lower maintenance cost on car, I assumed this to be $25/month and reduced expense on movie s $120/month so that he can afford his car payments.