Question

In: Finance

Susan is able to pay $300 a month for 4 years on a car loan. If...

Susan is able to pay $300 a month for 4 years on a car loan. If the interest rate is 4.8% per year, how much can she afford to borrow to buy a car?

Group of answer choices

$13,078.27

$12,824.95

$15,840.49

$15,470.38

Solutions

Expert Solution

a.$13,078.27.

amount she can borrow can be known using present value annuity formula;

A*[ 1- (1+r)^(-n)]/r

here,

A= $300

r = 4.8% per year

=>4.8% *1/12

=>0.4% per month

=>0.004.

n=4 years *12 months

=48 months.

=>300*[1-(1.004)^(-48)]/0.004

=>300*43.59425

=>$13,078.27.


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