Answer:
Since the finance’s monthly required payment of $304.07 is greater than the $250 monthly that you can afford, this implies that you CANNOT afford to purchase the car on finance.
Step-by-step explanation:
The monthly required payment of the finance can be calculated using the formula for calculating the present value of an ordinary annuity as follows:
PV = M * ((1 - (1 / (1 + r))^n) / r) …………………………………. (1)
Where;
PV = Present value or finance amount = $12,000
M = Finance’s monthly required payment = ?
r = Monthly interest rate = Annual interest rate / 12 = 17.9% / 12 = 0.179 / 12 = 0.0149166666666667
n = number of months = Number of years * 12 = 5 * 12 = 60
Substitute the values into equation (1) and solve for M, we have:
$12,000 = M * ((1 - (1 / (1 + 0.0149166666666667))^60) / 0.0149166666666667)
$12,000 = M * 39.464764662266
M = $12,000 / 39.464764662266 = $304.07
Since the finance’s monthly required payment of $304.07 is greater than the $250 monthly that you can afford, this implies that you CANNOT afford to purchase the car on finance.
