Question

You can afford car payments of $180 a month for five years. The interest rate is 3.9 percent, compounded monthly. How much can you afford to borrow to buy a car?

- $7,987.81

-$8,294.39

-$9,773.83

$9,797.82

Answer 1

Amount of borrowing = Present value of Future payments Present value of = P times [1 - (1 + r)^-n/r] where P = Periodic payment = $ 180 r = rate = 3.9 %/12 implies 0.325 % n = period = 5 times 12 implies 60 Calculations, = 180 times [1 - (1 + 0.00325)^-60/0.00325] = 180 [1 - 1/(1.00325)^60/0.00325] = 180 [1 - 0.8231/0.00325] = 180 times 0.1769/0.00325 implies $ 9797.54 (approx) So, Answer is $ 9797.82