Question

(25 Points) 2. You have decided to purchase a new car and trade-in your old car. The car dealer has offered you a trade-in value of $25,000 on your old car. The car dealer will finance the remaining cost of the new car; however, you have decided that the maximum monthly car payment that you can afford is $500.00. Your loan rate will be 6 percent APR and you will be financing for 5 years (60 monthly payments). What is the maximum amount that you can pay for the car (remember the trade in value of your old car is $25,000)? Financed for 60 months N=60 I/YR = 6% PMT = $500 PVA = ? Hint: Please use the following to determine your maximum loan amount given your maximum monthly loan payment is $500.00: PVA Payment 1 (1 r)

Answer 1

Maximum loan amount = 500*(1.005^60-1)/(0.005*1.005^60) =	$        25,863
Maximum that can be paid for the car = Maximum loan amount+trade in value of old car = 25863+25000 =	$        50,863