Question

After carefully going over your budget, you have determined you can afford to pay $922 per month toward a new sports car. You call up your local bank and find out that the going rate is 1 percent per month for 48 months. How much can you borrow

Answer 1

Answer: $35,036

Explanation: We will calculate the present value of $922 for a period of 48 months, thus:

Payment (pmt) = $922

n = 48

r = 1% or 0.01

PV = pmt((1 - (1 ÷ (1+r)^n) / r)

PV = 922((1 - (1 ÷ (1 + 0.01)^48) / 0.01)

PV = 922((1 - (1 ÷ (1.01^48) / 0.01)

PV = 922((1 - (1 ÷ 1.612) / 0.01)

PV = 922((1 - 0.62) / 0.01)

PV = 922(0.38/0.01)

PV = 922(38)

PV = 35,036.

Therefore, the amount that can be borrowed is $35,036.