Abdullah is an employee with salary of 250-riyal. He wants to buy a new car wort

Question

Abdullah is an employee with salary of 250-riyal. He wants to buy a new car worth RO 20,000. He decided to take a loan from the bank to buy the car.How much will be the monthly installment if he wishes to repay the loan within six years at a rate of 9%. and Do you recommend him buying this car? Abdullah is an employee with salary of 250-riyal. He wants to buy a new car worth RO 20,000. He decided to take a loan from the bank to buy the car.How much will be the monthly installment if he wishes to repay the loan within six years at a rate of 9%. and Do you recommend him buying this car?

Explanation / Answer

Rate = 0.09 / 12 = 0.0075 or 0.75%

Number of years = 6 * 12 = 72

Present value = Monthly payment * [ 1 - 1 / ( 1 + r)n] / r

20,000 = Monthly payment * [ 1 - 1 / ( 1 + 0.0075)72] / 0.0075

20,000 = Monthly payment * 55.476849

Monthly payment = $360.5

We will NOT recommend as his montly payment will exceed his salary

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