Leonore wants to ask for Fidelio’s hand in marriage. She is able to pay $250 at...

Leonore wants to ask for Fidelio’s hand in marriage. She is able to pay $250 at the end of each month for 6 years. If the interest rate is 8 percent annually with monthly compounding (an APR), how much can she afford to borrow to purchase Fidelio an engagement ring?
A. $1,450.23
B. $2,394.33
C. $5,230.03
D. $7,483.00
E. $10,001.99
F. $14,258.63
G. $16,154.54
H. $79,320.94
I. None of the above

Expert Solution

Solution:-
Annual rate of interest		=8%
Equal monthly payment		=$250
Payment to be made for		6 years
Number of peroid in months		=6*12 months
		=72 months
Compounding rate of interest per month		=0.66666666%


	The amount of loan that she can take
		=Equal monthly installment*PVIFA(0.66666%,72)
		=$250*57.034
		=$14,258.50
		ie: "F"


Working note for refrence :-
	Calculation of PVIF
peroid	PVIF @0.66666%
1	0.99337749
2	0.986798838
3	0.980263753
4	0.973771946
5	0.967323132
6	0.960917025
7	0.954553342
8	0.948231803
9	0.941952128
10	0.935714041
11	0.929517265
12	0.923361528
13	0.917246557
14	0.911172083
15	0.905137836
16	0.899143552
17	0.893188965
18	0.887273812
19	0.881397832
20	0.875560766
21	0.869762357
22	0.864002347
23	0.858280483
24	0.852596511
25	0.846950183
26	0.841341247
27	0.835769456
28	0.830234564
29	0.824736327
30	0.819274503
31	0.813848849
32	0.808459127
33	0.803105099
34	0.797786527
35	0.792503178
36	0.787254818
37	0.782041215
38	0.776862139
39	0.771717362
40	0.766606656
41	0.761529796
42	0.756486557
43	0.751476717
44	0.746500055
45	0.741556351
46	0.736645387
47	0.731766945
48	0.726920811
49	0.722106771
50	0.717324612
51	0.712574122
52	0.707855093
53	0.703167316
54	0.698510583
55	0.69388469
56	0.689289432
57	0.684724605
58	0.68019001
59	0.675685445
60	0.671210711
61	0.666765612
62	0.66234995
63	0.65796353
64	0.65360616
65	0.649277647
66	0.644977799
67	0.640706427
68	0.636463343
69	0.632248358
70	0.628061287
71	0.623901945
72	0.619770148
Total	=57.034

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