Question

You can get a car loan with a term of three years at an APR of 4%. If you can afford a monthly payment of $350, how much can you borrow?

Answer 1

Explanation:

This is an Ordinary annuity question. You are basically asked to find the Present Value of the annuity which is the amount borrowed.

PVA =
`(PMT)/(r) [1-(1+r)^(-n) ]`

PMT = Recurring payment = $350

r= interest rate ; monthly rate in this case = 4%/12 = 0.333% or 0.00333

n= total duration = 3 *12 = 36 months

PVA =
`(350)/(0.00333) [1-(1.00333)^(-36) ]`

PVA =105,105.1051 *0.11279645

PVA = 11,855.48275

Therefore, amount you can borrow is $11,855.48