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Annie Kavitha, Lecturer
Category: Finance
Satisfied Customers: 1024
Experience:  M.Com
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# You want to buy a car, but can make an initial payment of

### Customer Question

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?

Submitted: 7 years ago.
Category: Finance
Expert:  Annie Kavitha replied 7 years ago.

Hello Customer,

Click on the link below for solution.

Solution

Annie Kavitha, Lecturer
Category: Finance
Satisfied Customers: 1024
Experience: M.Com
Customer: replied 7 years ago.
how you obtained the PV?
Expert:  Annie Kavitha replied 7 years ago.

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.

Customer: replied 7 years ago.
I need the manual procedure, not in Excel
Expert:  Annie Kavitha replied 7 years ago.
ok just a minute.
Customer: replied 7 years ago.
ok, i'm waiting
Expert:  Annie Kavitha replied 7 years ago.

PV = 400 x PVIFA 1%, 48 periods

= 400 x 39.23065

= 15,692.26

Maximum price of the car = 17,692.26

B)

PV = 400 x PVIFA 1%, 60 periods

= 400 x 45.1986

= 18,079.45

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.

Customer: replied 7 years ago.
Thanks for all

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