Question
In: Accounting
7. David Puddy is car shopping and plans to buy a 2019 Toyota Corolla. After making...
7. David Puddy is car shopping and plans to buy a 2019 Toyota Corolla. After making a down payment, David plans to borrow $21,000 from his bank. The bank offers 4-year (48-month) car loans. David’s budget allows him to pay $500 monthly (at the end of each month) for the car. What is the maximum monthly interest rate that David can accept to keep his monthly payments to no more than $500 per month?
A. 6.70%
B. 5.56%
C. 0.56%
D. 0.42%
Solutions
Expert Solution
Answer: Option (C) 0.56%
Calculation:
Since the maximum monthly amount that could be payable by david is $500. Hence, this amount will be considered as fix EMI. Taking 0.56% as monthly interest rate, the loan gets completed in 48 months with EMI less than $500. Hence, maximum interest rate that david can afford will be 0.56%. This can be understood by below repayment schedule:
|
Instalment |
Amount (A) |
EMI (B) |
Interest (C)=(A)*0.56% |
Principal (D)=(B)-(C) |
Balance O/s (A)-(D) |
|
1 |
21,000.00 |
500.00 |
117.60 |
382.40 |
20,617.60 |
|
2 |
20,617.60 |
500.00 |
115.46 |
384.54 |
20,233.06 |
|
3 |
20,233.06 |
500.00 |
113.31 |
386.69 |
19,846.36 |
|
4 |
19,846.36 |
500.00 |
111.14 |
388.86 |
19,457.50 |
|
5 |
19,457.50 |
500.00 |
108.96 |
391.04 |
19,066.47 |
|
6 |
19,066.47 |
500.00 |
106.77 |
393.23 |
18,673.24 |
|
7 |
18,673.24 |
500.00 |
104.57 |
395.43 |
18,277.81 |
|
8 |
18,277.81 |
500.00 |
102.36 |
397.64 |
17,880.16 |
|
9 |
17,880.16 |
500.00 |
100.13 |
399.87 |
17,480.29 |
|
10 |
17,480.29 |
500.00 |
97.89 |
402.11 |
17,078.18 |
|
11 |
17,078.18 |
500.00 |
95.64 |
404.36 |
16,673.82 |
|
12 |
16,673.82 |
500.00 |
93.37 |
406.63 |
16,267.19 |
|
13 |
16,267.19 |
500.00 |
91.10 |
408.90 |
15,858.29 |
|
14 |
15,858.29 |
500.00 |
88.81 |
411.19 |
15,447.10 |
|
15 |
15,447.10 |
500.00 |
86.50 |
413.50 |
15,033.60 |
|
16 |
15,033.60 |
500.00 |
84.19 |
415.81 |
14,617.79 |
|
17 |
14,617.79 |
500.00 |
81.86 |
418.14 |
14,199.65 |
|
18 |
14,199.65 |
500.00 |
79.52 |
420.48 |
13,779.17 |
|
19 |
13,779.17 |
500.00 |
77.16 |
422.84 |
13,356.33 |
|
20 |
13,356.33 |
500.00 |
74.80 |
425.20 |
12,931.12 |
|
21 |
12,931.12 |
500.00 |
72.41 |
427.59 |
12,503.54 |
|
22 |
12,503.54 |
500.00 |
70.02 |
429.98 |
12,073.56 |
|
23 |
12,073.56 |
500.00 |
67.61 |
432.39 |
11,641.17 |
|
24 |
11,641.17 |
500.00 |
65.19 |
434.81 |
11,206.36 |
|
25 |
11,206.36 |
500.00 |
62.76 |
437.24 |
10,769.12 |
|
26 |
10,769.12 |
500.00 |
60.31 |
439.69 |
10,329.42 |
|
27 |
10,329.42 |
500.00 |
57.84 |
442.16 |
9,887.27 |
|
28 |
9,887.27 |
500.00 |
55.37 |
444.63 |
9,442.64 |
|
29 |
9,442.64 |
500.00 |
52.88 |
447.12 |
8,995.52 |
|
30 |
8,995.52 |
500.00 |
50.37 |
449.63 |
8,545.89 |
|
31 |
8,545.89 |
500.00 |
47.86 |
452.14 |
8,093.75 |
|
32 |
8,093.75 |
500.00 |
45.32 |
454.68 |
7,639.07 |
|
33 |
7,639.07 |
500.00 |
42.78 |
457.22 |
7,181.85 |
|
34 |
7,181.85 |
500.00 |
40.22 |
459.78 |
6,722.07 |
|
35 |
6,722.07 |
500.00 |
37.64 |
462.36 |
6,259.71 |
|
36 |
6,259.71 |
500.00 |
35.05 |
464.95 |
5,794.77 |
|
37 |
5,794.77 |
500.00 |
32.45 |
467.55 |
5,327.22 |
|
38 |
5,327.22 |
500.00 |
29.83 |
470.17 |
4,857.05 |
|
39 |
4,857.05 |
500.00 |
27.20 |
472.80 |
4,384.25 |
|
40 |
4,384.25 |
500.00 |
24.55 |
475.45 |
3,908.80 |
|
41 |
3,908.80 |
500.00 |
21.89 |
478.11 |
3,430.69 |
|
42 |
3,430.69 |
500.00 |
19.21 |
480.79 |
2,949.90 |
|
43 |
2,949.90 |
500.00 |
16.52 |
483.48 |
2,466.42 |
|
44 |
2,466.42 |
500.00 |
13.81 |
486.19 |
1,980.23 |
|
45 |
1,980.23 |
500.00 |
11.09 |
488.91 |
1,491.32 |
|
46 |
1,491.32 |
500.00 |
8.35 |
491.65 |
999.68 |
|
47 |
999.68 |
500.00 |
5.60 |
494.40 |
505.27 |
|
48 |
505.27 |
500.00 |
2.83 |
497.17 |
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