Question

Marcus Holloway has $1,000 that he will use as a down payment on a car. Assuming that he can afford a payment of $225 per month, how much can Marcus spend on a car (that is, what is the total cost of the car that Marcus can purchase) if the interest rate is 3.75% and if he will finance his purchase with a 5 year, monthly payment loan

Answer 1

$13,295.45

Step-by-step explanation:

The Cost of the car is its Present Value amount.

So, we need to find the Present Value of the Monthly payments and add to the down payment to determine the Total Cost of the Car.

Present Value of the Monthly payments :

FV = $0

Pmt = - $225

N = 5 × 12 = 60

P/yr = 12

i = 3.75%

Pv = ?

Using a financial calculator to input the values as above, the Present Value of the Monthly payments is $12,295.45

Thus, the total cost of the car will be :

Total Cost = $12,295.45 + $1,000

= $13,295.45