Question

A small business owner visits her bank to ask for a loan. The owner states that she can repay a loan at $1,600 per month for the next three years and then $3,200 per month for two years after that. If the bank is charging customers 9.00 percent APR, how much would it be willing to lend the business owner

Answer 1

The bank would be willing to lend the business owner up to $139,886.80 with a monthly payment of $1,600 for 3 years and $3,200 for 2 years at 9.00% APR.

Step-by-step explanation:

To calculate the maximum loan a business owner can afford, we need to use the present value formula. The formula is:

PV = PMT x (1 - (1 + r)^-n) / r

Where PV is the present value, PMT is the monthly payment, r is the monthly interest rate, and n is the number of monthly payments.

In this case, the business owner can afford to pay $1,600 per month for the first 3 years and then $3,200 per month for the next 2 years. The bank is charging customers 9.00% APR, which means the monthly interest rate is 9.00% / 12 = 0.0075.

Using the formula, we can calculate the maximum loan:

PV = $1,600 x (1 - (1 + 0.0075)^(-36)) / 0.0075 + $3,200 x (1 - (1 + 0.0075)^(-24)) / 0.0075

This calculates to approximately $139,886.80. Therefore, the bank would be willing to lend the business owner up to $139,886.80.

Answer 2

The bank would be willing to lend the business owner $120,320

Step-by-step explanation:

In this question, we are asked to state how much will a bank be willing tom lend the business owner that approached it for a loan given the information in the question;

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