Question

Jill wants to buy a car but needs to calculate how much she can afford to borrow. The maximum she can repay is $1600 at the end of each quarter and the bank has indicated it will charge a fixed 7.1% p.a compounding quarterly. If she takes a loan for 4 years how much can she afford to borrow? (Do not use the $ sign or commas; include cents e.g 24500.09)

Answer 1

Quarterly Payment = 1600

Quarterly rate = 1.775%

Number of payments = 4*4 = 16

Loan Amount = Present value of all the quarter payment discounted at quarterly rate

Loan Amount = 1600/(1+0.01775)^1 + 1600/(1+0.01775)^2 + 1600/(1+0.01775)^3 + 1600/(1+0.01775)^4 + 1600/(1+0.01775)^5 + 1600/(1+0.01775)^6 + ................ 1600/(1+0.01775)^16

Loan Amount =  22116.58 Answer

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