You are looking to buy a car. You can afford $580 in monthly payments for five y
ID: 2767433 • Letter: Y
Question
You are looking to buy a car. You can afford $580 in monthly payments for five years. In addition to the loan, you can make a $680 down payment. If interest rates are 9.75 percent APR, what price of car can you afford? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
You are looking to buy a car. You can afford $580 in monthly payments for five years. In addition to the loan, you can make a $680 down payment. If interest rates are 9.75 percent APR, what price of car can you afford? (Do not round intermediate calculations. Round your final answer to 2 decimal places.)
Explanation / Answer
Monthly payment = Loan amount (L) x [r x (1 + r)N] / [(1 + r)N - 1]
Monthly interest, r = 9.75% / 12 = 0.8125%
Number of months, N = 5 x 12 = 60
Then,
$580 = L x [0.008125 x (1.008125)60] / [(1.008125)60 - 1]
$580 = L x [0.008125 x 1.6250] / [1.6250 - 1]
$580 = L x 0.0132 / 0.625
L = $27,462.12
Price I can afford = Loan amount + Down payment = $(27,462.12 + 680) = $28,142.12
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