Question

A student has a job that leaves her with $300 per month in disposable income. She decides that she will use the money to buy a car. Before looking for a car, she arranges a 100% loan whose terms are $300 per month for 48 months at 9% nominal annual interest. What is the maximum car purchase price that she can afford with her loan

Answer 1

$12,055.44

Step-by-step explanation:

The computation of the maximum car purchase price that can afford the loan is as follows:

But before that following calculations must be done:

The Monthly interest rate is

= 9% ÷ 12

= 0.75%

The Maximum price ($) is

= $300 × PVIFA(0.75%, 48)

= $300 × 40.1848

= $12,055.44