Question

You want to buy a new car, but you can make an initial payment of only $1,600 and can afford monthly payments of at most $750.

a. If the APR on auto loans is 12% and you finance the purchase over 48 months, what is the maximum price you can pay for the car? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Maximum Price =

b. How much can you afford if you finance the purchase over 60 months? (Do not round intermediate calculations. Round your answer to 2 decimal places.)

Maximum Price =

Answer 1

Question a:

r = monthly interest rate = 12%/12 = 1%

n = 48 months

P = Monthly payment = $750

Maximum price = Down payment + [P * [1 - (1+r)^-n] / r]

= $1,600 + [$750 * [1 - (1+1%)^-48] / 1%]

= $1,600 + [$750 * 0.379739595 / 0.01]

= $1,600 + $28,480.4696

= $30,080.4696

Therefore, affordable macimum price is $30,080.47

Question b:

r = monthly interest rate = 12%/12 = 1%

n = 60 months

P = Monthly payment = $750

Maximum price = Down payment + [P * [1 - (1+r)^-n] / r]

= $1,600 + [$750 * [1 - (1+1%)^-60] / 1%]

= $1,600 + [$750 * 0.449550384 / 0.01]

= $1,600 + $33,716.2788

= $35,316.2788

Therefore, affordable macimum price is $35,316.28