Question

Jana has $1,500 for a down payment and thinks she can afford monthly payments of $300. if she can finance a vehicle with a 7 percent, 4-year loan from a credit society, what is the maximum loan amount jana can afford? (round off the answer to nearest units place.)

Answer 1

Monthly payment, p = $300
Duration of loan, t = 4 years
Interest rate, r = 7% = 0.07
n = 12, the compounding interval.

The value of the loan is
A = (4 yr)*(12 mo/yr)*($300 per mo) = $14400

Let P = the principal (the amount financed).
Then

`P(1 + (r)/(n) )^(nt) = A`
n*t = 12*4 = 48
P(1 + 0.07/12)⁴⁸ = 14400
1.3221P = 14400
P = $10,892.14

Answer: $10,892 (nearest dollar)