You want to buy a car, but you can make an initial payment of only $2,000 and can afford monthly payments of at most $400. a) If the APR on auto loans is 12 percent and you finance the purchase over 48 months, what is the maximum price you can pay for the car? b) How much can you afford if you finance the purchase over 60 months?
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PV is calculated by using the built-in financial calculator in excel sheet.
To obtain the value the following input is given in the first case:
Rate = 1%; No. of periods = 48; Payment per period = 400.
Use PV function to obtain the value.
Place the cursor on B7 cell you will see the function of PV.
Similarly do it for the second case of 60 months.
Hope this is clear. I will clarify if you have any other doubt.
PV = 400 x PVIFA 1%, 48 periods
= 400 x 39.23065
Add down payment made 2,000
Maximum price of the car = 17,692.26
PV = 400 x PVIFA 1%, 60 periods
= 400 x 45.1986
Add cah down payment of 2,000
Maximum price of the car = 20,079.45
Note: the answers as per financial calculator and manual calculations differ slightly.