You have reviewed your budget and determine that the most you can afford on a car loan is $375 per month. What is the most you can borrow if interest rates are 8% and you can pay the loan over 5 years?
A) $20,591.86
B) $16,779.02
C) $18,494.41
D) $21,147.83

Question

Quizplus · Accepted Answer

We can use the formula for the present value of an annuity to determine the most we can borrow:

PV = PMT x ((1 - (1 + r)^-n) / r)

Where:
PMT = $375
r = 8%/12 = 0.00667 (monthly interest rate)
n = 5 x 12 = 60 (total number of months)

Plugging in the values, we get:

PV = $375 x ((1 - (1 + 0.00667)^-60) / 0.00667)
PV = $18,494.41

Therefore, the most we can borrow is $18,494.41, which is option C.

You Have Reviewed Your Budget and Determine That the Most