Final answer:
To calculate the total amount Emilee will pay back under a finance agreement, one needs to know the specifics of the loan. Joanna's example, with a known interest rate and term, shows how to use the present value of an annuity formula to find out the maximum loan and total amount paid over time.
Step-by-step explanation:
The question pertains to calculating the total amount that Emilee will pay back under a finance agreement for her purchase. To determine this amount, one must know the principal amount of the loan, the interest rate, and the term of the loan.
For instance, if Joanna can afford to pay $12,000 a year for a house loan at an annual interest rate of 4.2% for 30 years, one can use the formula for the present value of an annuity to calculate the maximum loan she can afford. The formula is PV = PMT [1 - (1 + i)^(-n)] / i, where PV is the present value (the maximum loan), PMT is the annual payment ($12,000), i is the interest rate per period (4.2% annually), and n is the number of periods (30 years).
By applying this formula, Joanna can afford a maximum loan of approximately $202,556.98. Over 30 years, she will end up paying $12,000 times 30, which equals $360,000 in total. Similarly, to determine the total amount Emilee will repay, the same types of calculations would apply based on the terms of her finance agreement.