Question

You can afford a $250 per month car payment. You've found a 4 year loan at 5% interest. How big of a loan can you afford? Submit Question

Answer 1

Solution:-

To Calculate Loan Amount which can be afforded-

Present Value = $Cash Flows * \frac{1-(1+r)^{-n}}{r}$

Present Value = $250 * \frac{1-(1+\frac{0.05}{12})^{-4*12}}{\frac{0.05}{12}}$

Present Value = $250 * \frac{1-(1+0.004167)^{-48}}{0.004167}$

Present Value = $250 * \frac{1-0.819057966}{0.004167}$

Present Value = 250 * 43.4226143

Present Value = $10,855.65

Afforded amount will be $10,855.65

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