Jenny Genius wants to purchase a new car. She knows that she can afford to pay $250 per month and that her bank will charge her 8% interest on the car loan. She intends to pay off the car in five years. Interest will be compounded monthly. Of the following, which is the most expensive vehicle in her price range that she could consider?
A) A Taurus selling for $11,900
B) A Malibu selling for $12,320
C) A Civic selling for $14,670
D) A Celica selling for $17,500

Question

Quizplus · Accepted Answer

To find the most expensive car Jenny can afford, we need to calculate the maximum loan amount she can take with a monthly payment of $250, an interest rate of 8% compounded monthly, and a term of 5 years. Using the formula for the present value of an annuity, the maximum loan amount is approximately $11,933. Therefore, the Taurus and Malibu are within her budget, but the Malibu is the most expensive option she can afford.

Jenny Genius Wants to Purchase a New Car