7. I am a student and can afford a monthly car payment of $350. How much...

7. I am a student and can afford a monthly car payment of $350. How much could I finance on a car purchase, assuming auto borrowing rates are 3.0%, and the term of the loan is 5 years?

8. I have since graduated from Webster. I can now afford a payment of $550 per month. How much could I finance now, assuming terms of 3.0%, and 6 years?

Expert Solution

7). afforded monthly payment PMT = $350

interest rate = 3% compounded monthly

term of loan t = 5 years

So, affordable car loan can be calculated using PV formula of annuity

PV = PMT*(1 - (1+r/n)^(-n*t))/(r/n) = 350*(1 - (1+0.03/12)^(-12*5))/(0.03/12) = $19478.33

8). If monthly payment afforded PMT = $550

interest rate = 3% compounded monthly

term of loan t = 6 years

So, affordable car loan can be calculated using PV formula of annuity

PV = PMT*(1 - (1+r/n)^(-n*t))/(r/n) = 550*(1 - (1+0.03/12)^(-12*6))/(0.03/12) = $36199.27

jeff jeffy answered 2 years ago

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