Question

Suppose Samuel wants to buy a boat. The dealer offers a financing package consisting of a 6% APR compounded monthly for a term of 7 years. Suppose Samuel wants his monthly payments to be at most $310. What is the maximum amount that he should finance?

A. $15,000

B. $20,000

C. $25,000

D. $30,000

Answer 1

To calculate the maximum amount Samuel should finance, we can use the formula for the monthly payment on a loan.

Step-by-step explanation:

To determine the maximum amount Samuel should finance, we need to calculate the monthly payment he can afford. Using the financing package information, we can use the formula for the monthly payment on a loan:

Monthly Payment = (Principal * Monthly Interest Rate) / (1 - (1 + Monthly Interest Rate)^(-Number of Months))

Plugging in the values, we get:

310 = (Principal * (0.06/12)) / (1 - (1 + (0.06/12))^(-7*12))

After solving the equation, the maximum amount Samuel should finance is approximately $17,067.