Question

You have saved $2,000 for a down payment on a new car. The largest monthly payment you can afford is $475. The loan will have a 13% APR based on end-of-month payments. What is the most expensive car you can afford if you finance it for 60 months? For 72 months?

Answer 1

Down Payment = $2,000

Monthly Payment = $475

Interest Rate = 13%

a.

Time period = 60 months

Calculating Present Value,

Using TVM Calculation,

PV = [Fv = 0, PMT = 475, T = 60, I = 0.13/12]

PV = $20,876.3

Maximum Loan Amount = 20,876.30 + 2,000

Maximum Loan Amount = $22,876.30

b.

Time period = 72 months

Calculating Present Value,

Using TVM Calculation,

PV = [Fv = 0, PMT = 475, T = 72, I = 0.13/12]

PV = $23,662.32

Maximum Loan Amount = 23,662.32 + 2,000

Maximum Loan Amount = $25,662.32