Question

You want to buy a new car, but you can make an initial payment of only $1729 and can afford monthly payments of at most $517. If the interest rate is 9.4 percent per year compounded monthly and you finance the purchase over 48 months, what is the maximum price you can pay for the car?

		25938.83
		18787.33
		25587.3
		19526.21
		22346.81

Answer 1

Last option amount is correct

Maximum price you can for car = initial payment + loan amount

Calculation of the loan amount :-

EMI = P * r *(1+r)n / [ (1+r)n -1)]

EMI = equal monthly installment= 517

P = loan amount or principal amiunt

r = rate of month = 9.4 /12 = 0.78333%

n = number of amount = 48 months

Emi = P * 0.007833 * (1.007833)48 / [ (1.007833)48 -1]

517 = P * 0.0113921317 / 0.45431475

P = 517 / 0.02507541072

P = 20,617.8079

Loan amount = 20,617.8079

Maximum price you can pay for the car = initial payment + loan amount

= $ 1729 + 20,617.8079

Maximum price you can pay for the car = $ 22,346.81

Option e is correct.