Question

Travis can afford a $260-per-month car payment, and he is interested in either a compact car, which costs $10800, or a coupe, which costs 11,300. If he is being offered a 4-year car loan with and APR of 6%, compounded monthly, which car can Travis afford?

Answer 1

Answer: travis can afford the compact car but not the coupe

Explanation:

Answer 2

Travis can afford the compact car.

Explanation:

The EMI formula is :

`(p*r*(1+r)^(n) )/((1+r)^(n)-1 )`

In first case:

p = 10800

r = 6/12/100=0.005

n = 4*12 = 48

Putting values in the formula we get:

`(10800*0.005*(1+0.005)^(48) )/((1+0.005)^(48)-1 )`

= $254

We can see that Travis can afford the compact car because the EMI is less than $260.

In second case:

p = 11300

r = 6/12/100=0.005

n = 4*12 = 48

Putting values in the formula we get:

`(11300*0.005*(1+0.005)^(48) )/((1+0.005)^(48)-1 )`

= $265.75

We can see that the coupe will have an EMI of $265.75 which is higher than the amount that Travis can afford.

Hence, Travis can afford a compact car.