You have saved $2,500 toward a new car and you believe that you can afford month

Question

You have saved $2,500 toward a new car and you believe that you can afford monthly payments of $250.

(a) If your bank offers financing terms of 60 months at a 12% interest compounded monthly, what is the most you can pay for a car?

(b) The dealer offers 9%, compunded monthly financing, but the loan is for only 36 months. What is the most you can pay for a car on this basis?

A.

$17,338.75, $10,361.75

B.

$13,738.75, $10,361.75

C.

$15,361.75, $9,338.75

D.

$13,837.75, $9,361.75

A.

$17,338.75, $10,361.75

B.

$13,738.75, $10,361.75

C.

$15,361.75, $9,338.75

D.

$13,837.75, $9,361.75

Explanation / Answer

PV = 250*PVIFA(1,60) = $11228.75

total value can be paid = 2500+11238.75 = $13738.75

PV = 250*PVIFA(.75,36) = $7861.7

total value can be paid = 2500+7861.7 = $10361.75

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