Question

Lilo wants to purchase a car. She reviewed her budget and can comfortably afford a car payment of $450 per month. Lilo has good credit and anticipates being able to secure a 4-year loan at 4% interest. How much car loan can she get for the $450 payment?

a) $19,000
b) $21,000
c) $23,000
d) $25,000

Answer 1

To determine how much Lilo can afford for a car loan with a $450 monthly payment, a present value of an annuity formula or a loan calculator that accounts for the payment amount, interest rate, and loan term would be used. Without the exact calculation, we cannot select an option from a, b, c, or d.

Step-by-step explanation:

Lilo is interested in purchasing a car and wants to know how much she can borrow with a monthly car payment she can afford. To find out how much car loan Lilo can get for a $450 monthly payment, we would typically use a form of the present value of an annuity formula, which takes into account the regular payments (PMT), the number of periods (n), and the interest rate per period (i). With the information provided, we would solve for the present value of an annuity, which represents the loan amount Lilo is able to secure.

The formula for the present value of an annuity is typically written as:

PV = PMT × ((1 - (1 + i)^{-n}) / i)

Given the information, we know that PMT = $450, i = 4% annually (or 0.04 / 12 per month), and n = 4 years × 12 months per year. Plugging these values into the formula will give us the present value of an annuity, which corresponds to the total loan amount Lilo can afford.

However, without calculating the exact amount using the formula, we can't conclusively say which option (a, b, c, or d) is correct. But we can suggest that by plugging these values into the formula or by using a loan calculator, Lilo would be able to quickly find out the maximum car loan she can afford.