Question

You want to buy a new car. You can afford payments of $300 per month and can borrow the money at an annual interest rate of 5.5% compounded monthly for 5 years. How much are you able to borrow? $ How much interest do you pay? $

Answer #1

ans a) | How much are you able to borrow | |||

We have to use financial calculator to solve this | ||||

put in calcualtor | ||||

FV | 0 | |||

PMT | -300 | |||

I | 5.5%/12 | 0.4583% | ||

N | 5*12 | 60 | ||

Compute PV | $15,705.85 | |||

Ability to borrow = |
$15,705.85 |
|||

ans b) | Amount of interest paid | |||

we have to compute the future value | ||||

put in calculator | ||||

PV | $0.00 | |||

PMT | -300 | |||

I | 0.4583% | |||

N | 60 | |||

Compute FV | $20,664.25 | |||

Interest = | $4,958.40 | |||

22664.25-15705.58 | ||||

answer = |
$4,958.40 |
|||

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