After carefully going over your budget, you have determined you can afford to pay $632 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

Question

Chace Moody

Business

3 March, 14:33

After carefully going over your budget, you have determined you can afford to pay $632 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

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Mr. Clean · Answer 1

I can borrow $24,000

Explanation:

A fix Payment for a specified period of time is called annuity. The discounting of these payment on a specified rate is known as present value of annuity.

The amount of loan can be calculated as follow

PV of annuity = P x [ (1 - (1 + r) ^-n) / r ]

Amount of Loan = $632 x [ (1 - (1 + 1%) ^-48) / 1% ]

Amount of Loan = $632 x [ (1 - (1.01) ^-48) / 0.01 ]

Amount of Loan = $24,000

r = 7.17%

Interest rate is 7.17%