Question

You want to buy a new car. You can afford payments of $500 per month and can borrow the money at an annual interest rate of 5.1% compounded monthly for 5 years.

How much are you able to borrow?

$

How much interest do you pay?

$

Answer 1

ANSWER DOWN BELOW. FEEL FREE TO ASK ANY DOUBTS. THUMBS UP PLEASE.

Formula: The present value of an ordinary annuity (PV)

PV = C× [1-(1+r)^-n]/r

PV = Present value (The cummulative amount available at Present)

C= Periodic cash flow. 500

r =effective interest rate for the period. 5.1%/12 = 0.425%

n = number of periods. 5*12 = 60

PV = 500× [1-(1+0.00425)^-60]/0.00425

PV = $26,431.14

Amount Able to Borrow = $26,431.14

Interest Payment = (500*60)-$26,431.14

= $3,568.86