Question

Mary and Mike are friends and each of them wants to buy a used car. After reviewing their budgets each of them decides that they want a maximum monthly car payment of $350 each. Mary has excellent credit and can qualify for a 60 month car loan at 3.5%. Mike has bad credit and can qualify for a 60 month car payment at 18%.
1. How much car can Mary afford to buy?
2. How much car can Mike afford to buy?
3. How much in interest will Mary pay over the life of her loan?
4. How much in interest will Mike pay over the life of his loan

Assume the same facts regarding interest rates and a 60 month term, as outlined in question 1 above, for Mary and Mike. Now assume that both decide they want to buy a used car that costs $17,500.
5. What is Mary’s monthly payment?
6. What is Mike’s monthly payment?
7. How much more in interest will Mike pay over the life of his loan

Answer 1

1)use pv formuale in excel
=pv(rate,nper,pmt,fv,type)
=pv(3.5%/12,60,-350,0,0)
=19239.50
2)use pv formuale in excel
=pv(rate,nper,pmt,fv,type)
=pv(18%/12,60,-350,0,0)
=13783.09
3)interest paid in total=total payments-principal
=(350*60)-19239.50=1760.50
4)interest paid in total=total payments-principal
=(350*60)-13783.09=7216.91
5)use pmt formuale in excel
=pmt(rate,nper,pv,fv,type)
=pmt(3.5%/12,60,-17500,0,0)=318.36
6)use pmt formuale in excel
=pmt(rate,nper,pv,fv,type)
=pmt(18%/12,60,-17500,0,0)=444.38
7)total interest paid mor eby mike=7216.9-1760.50=5456.40