Question

	Complete the following problems using either a financial calculator or a spreadsheet program. Do not use interim rounding, state your answers as positive values, to two decimal places for dollar or period values and four places for percentages stated as decimals; do not label answers with symbols such as $ or %. For example, 10.5% should be input as .1050.

If he wants to buy a car and determines she can afford to pay $260.78 a month for a 4 year loan. The rate on such a loan is 0.0452. How much money can he borrow?

Answer 1

Max Amount that can be afford is PV of Annuity.

PV of Annuity:

Annuity is series of cash flows that are deposited at regular intervals for specific period of time.

PV of Annuity = Cash Flow * [ 1 - [(1+r)^-n]] /r
r - Int rate per period
n - No. of periods

Particulars	Amount
Cash Flow	$               260.78
Int Rate	0.3767%
Periods	48

PV of Annuity = Cash Flow * [ 1 - [(1+r)^-n]] /r
= $ 260.78 * [ 1 - [(1+0.0038)^-48]] /0.0038
= $ 260.78 * [ 1 - [(1.0038)^-48]] /0.0038
= $ 260.78 * [ 1 - [0.8349]] /0.0038
= $ 260.78 * [0.1651]] /0.0038
= $ 11431.46