You want to buy a new car, but you can make an initial payment of only $1,400 an

Question

You want to buy a new car, but you can make an initial payment of only $1,400 and can afford monthly payments of at most $800. 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.) Maximum price b. 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

Initial Payment = 1,400

PMT = 800

APR = 12%

Monthly rate = 12%/ 12 = 1%

N = 48 months

Using financial calculator:

PV = 30,379.17

With down payment of $1,400

you can pay at most = 30,379.17 + 1,400

you can pay at most = 31,779.17

Part B:

N = 60

I = 1%

FV = 0

PMT = 800

Using financial calculator:

PV = 35,964.03

With down payment of $1,400

you can pay at most = 35,964.03 + 1,400

you can pay at most = 37,364.03

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