Question

Scarlett is looking to buy a car and the she qualified for a 6-year loan from a bank offering an annual interest rate of 3.9%, compounded monthly Using the formula below, determine the maximum amount Scarlett can borrow, to the nearest dollar, if the highest monthly payment she can afford is dollar sign, 200$200

Answer 1

The highest monthly payment Scarlet can afford and the annual interest rate, compounded monthly, indicates that the maximum amount Scarlet can borrow is about; $12,820.79

The steps used to find the maximum amount Scarlet can borrow can be presented as follows;

The possible formula in the question, obtained from a similar question on the internet can be presented as follows;

`M=(P\cdot r)/(1-(1+r)^(-n))`

The values of the variables obtained from the question are;

M = $200

P = The amount Scarlet can borrow

r = The monthly interest rate compounded monthly

n = The number of payments

r is; 3.9%/12 = 0.00325

n = 12 × 6

12 × 6 = 72

n = 72

Therefore;

`200=(P* 0.00325)/(1-(1+0.00325)^(-72))`

`P=(200* ( 1-(1+0.00325)^(-72)))/(0.00325)`

`(200* ( 1-(1+0.00325)^(-72)))/(0.00325)\approx \$12,820.79`

The maximum amount Scarlet can borrow, P, ≈ $12,820.79