You want to buy a new car, but you can make an initial payment of, only $1,800 a
ID: 2728305 • Letter: Y
Question
You want to buy a new car, but you can make an initial payment of, only $1,800 and can afford monthly payments of at most $700.
a. If the APR on auto loans is 12% and you finance the purchase over 48 months, what is the maximum price you can pay for the car? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
How much can you afford if you finance the purchase over 60 months? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Maximum price $Explanation / Answer
a. Price of the car is the present value of cash flow.
Maximum price that can be pay is $ 28,381.80
Working:
b)
Maximim price is $ 33,268.5
APR = 12% Monthly interest rate = 1% Term (n) = 48 Months Monthly payment = 700 Intial payment = 1800 (i) Present Value of initial payment = Initial Payment *Discount factor @1% = 1800*1 = 1800 (ii) Present value of monthly payment = Monthly paymentxCumulative discount factor @1% for 48 months = 700*37.974 = 26581.8 Total of (i) and (ii) = 28381.8 Cumulative discount factor = {1-(1+i)^-n}/i = {1-(1+.01)^-48}/.01 = 37.974Related Questions
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