MAT 1030.005 est: Exam 2 (3A, 3B, 3E, 4A, 4B, 4C, 4D) Submit his Question: 1 pt

Question

MAT 1030.005 est: Exam 2 (3A, 3B, 3E, 4A, 4B, 4C, 4D) Submit his Question: 1 pt 26 of 28 (17 complete) This Test: 100 pts pos Someone needs to borrow S12 000 to buy a car and the person has determined that monthly payments of S225 are affordable APR a 5-year loan at 8 5%, or a 6-year loan at 9% APR which loan best meets the person's needs? Explain Which loan best meets the p Round the final answer to the nearest cent as needed. Round all intermediate values to six decimal places as needed) o A. The first loan best meets the person's needs because the monthly payment of Sr] is less tha The bank offers a 4-year loan at 8% s needs? n the maximum budgeted amount of$225 per month is less than the maxdmum budgeted amount of $225 per month n best meets the person's neds because the monthly payment of s ° C. The second loan best r $225 per month. O D. None of the loans meet the person's needs

Explanation / Answer

The loan to be required is 12,000 with a maximum monthly payment budget of 225$

So we calculate the monthly EMI of all three loans amd see which one falls within the budget.

Formula for EMI is = P*r*(1+r)n / [ (1+r)n -1 ] where P= principal borrowed, n= number of months ; r= monthly interest rate.

Substituing the values of n= 48 and r=0.08/12= 0.0067 we get the EMI as 293 (exceeds budget)

Substituing the values of n= 60 and r= 0.085/12= 0.007083 we get the EMI as 246 (exceeds budget)

Substituting the values of n= 72 and r= 0.09/12= 0.0075 we get EMI as 216 (withong budget)

Thus, the third loan best meets the needs as the monthly payment of 216 is lower than the max budget of 225

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