Question

(1) You have just graduated from EOU and secured a job as stock broker working for a regional brokerage exchange. To celebrate your new position, you are going to buy the car/truck of your dreams.

You can purchase any car/truck you like, but you cannot spend more than $600/month on the payment. You can take out a 5-year loan. The current interest rate is 5.99%

Shop for the car/truck you want on the Internet. Based on these guidelines, how much will your down payment have to be to purchase the vehicle?

Can you get there based on your first month’s commissions?

What other options might exist?

Answer 1

Let us take the value of the car we want to buy be $36,000.

Now if u take a loan of 5 year @ 5.99% and u cannot spend more than $600/ month, means the max amount you can pay is around $7200/year or 5* 7200/year i.e. $36000. therefore this is the max amount you can spend.

now let us calculate the periodic installments. installments for loan can be calculated by the formula ; where P= loan amount, r= rate, n=number of years. putting the values in the formula we get EMI= $695 per month. which is more than what he can spend (600/month).

So, using the same formula we can find out the maximum loan he can take when EMI=600, r=5.99, n=5 yr, we get P=31000

so, the initial down payment will be (36000-31000)= $5000 to buy a car worth $36000.

he can get the whole amount if he gets a commission of $5000 in the first month, which will not be an easy task. either he have to choose low cost car (value less than 31000) or he needs to wait for few months so that he can pay $695/month installment after his earnings through commission increases.