Buying a car 12) At the same time you bought the house you wanted to buy a car.

Question

Buying a car

12) At the same time you bought the house you wanted to buy a car. As a rule of thumb, your total installment payments should not exceed 30% of your income.Since you will be spending 25% on the house, you have only 5% of your gross pay $42,542.72 for making payments on a car loan.The car loan will be a 4 -year loan with monthly payments at 9% (compounded monthly). How much could you afford to pay per year on the car?

13) How much could you pay per month?

14)What is the cash price of a car that could be purchased based on the maximum monthly payment you could afford?

Explanation / Answer

Answer:

12.

13.

Affordable Monthly payment = 2127.14/12 = $177.26

14. Affordable Cash price of the car

= $177.26 [{(1+r)n - 1} / r*(1+r)n] ,where r = rate of interest per month =9%/12 =0.75% = 0.0075 ,

n = no of period = 4*12 = 48 months

=$177.26 [{(1+0.0075)48 - 1} / 0.0075*(1+0.0075)48] = $177.26 (0.4314/0.0107) = $7113.44 (ans)

Particulars in $ A Gross pay 42542.72 B Spending in house loan (25% of A) 10635.68 C Spending in car loan (5% of A) $2127.14

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