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erica [24]
3 years ago
6

Todd can afford to pay $375 per month for the next 7 years in order to purchase a new car. The interest rate is 6.5 percent comp

ounded monthly. What is the most he can afford to pay for a new car today
Business
1 answer:
Svetlanka [38]3 years ago
4 0

Answer:

The most he can afford to pay = $25,260.07

Explanation:

The most he can afford to pay is the present value of the  $375 per month discounted at the interest rate of return of 6.5% p.a

PV = A× (1- (1+r)^(-n))/r

PV = ?, A- 375,  r- 6.5/12= 0.541%   n= 12×7 = 84

PV = 375× (1- (1.00541)^(-84) )/0.00541= 25260.071

The most he can afford to pay = $25,260.07

<em>Note: the monthly interest rate needed to be computed by dividing 6.5% by 12 and the number of months in 7 years is 7 × 12 = 84 </em>

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