Your local bank is offering an interest rate of 5.3% APR, compounded monthly, on a 60-month loan. If all you can pay is $250 per month, what is the maximum loan you can afford to get for a new car?
PLEASE TRY TO BE A SIMPLE AS POSSIBLE, preferably using excel!
| Loan amount | $ 13,151.55 | |||||||||||
| Working: | ||||||||||||
| Price of car today is the present value of cash flows in future. | ||||||||||||
| Present Value of Cash flows | = | Annuity * Present value of annuity of 1 | ||||||||||
| = | $ 250.00 | * | 52.60619 | |||||||||
| = | $ 13,151.55 | |||||||||||
| Present value of annuity of 1 | = | (1-(1+i)^-n)/i | Where, | |||||||||
| = | (1-(1+0.004417)^-60)/0.004417 | i | 5.3%/12 | = | 0.004417 | |||||||
| = | 52.6061913 | n | = | 60 | ||||||||
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