Question

If sandy can afford car payments of $300 a month for five years, what is the price of the car she can afford now? Assume an interest rate of 8.4 percent.

Sandy can afford a car that costs __ or less

Round to the nearest dollar as needed.

Answer #1

**The price is computed as shown below:**

**Present value = Monthly payment x [ (1 – 1 / (1 +
r) ^{n}) / r ]**

**r is computed as follows:**

= 8.4% / 12 (Since the payments are on monthly basis, hence divided by 12)

**= 0.7% or 0.007**

**n is computed as follows:**

= 5 x 12 (Since the payments are on monthly basis, hence multiplied by 12)

**= 60**

**So, the amount will be computed as follows:**

= $ 300 x [ (1 - 1 / (1 + 0.007)^{60} ) / 0.007 ]

= $ 300 x 48.85587164

**= $ 14,656 Approximately**

**So, Sandy can afford a car that costs $ 14,656 or
less.**

Feel free to ask in case of any query relating to this question

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