Question

You are borrowing money to buy a car. If you can make payments of $508 per month starting one month from now at an annual interest rate of 9%, how much will you be able to borrow for the car today if you finance the amount over 4 years?

Answer 1

Monthly mortgage payment you can afford = $508

Calculating the Loan amount you can afford based on monthly payments using PV of annuity formula:-

Where, C= Monthly Payment = $508

r = Periodic Interest rate = 9%/12 = 0.75%

n= no of periods = 4 years*12 = 48

Present value = $20,413.87

So, the amount you will be able to borrow for the car today is $20,413.87

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