Phil can afford $180 a month for 5 years for a car loan. If the interest rate is 8.6 percent, how much can he afford to borrow to purchase a car?

Question

Quizplus · Accepted Answer

Using the formula for calculating loan payments:

Loan payment = (P × r) / [ 1 − (1+r)^−n ]

where P is the principal (the amount borrowed), r is the monthly interest rate (as a decimal), and n is the number of payments.

We know that Phil can afford to pay $180 per month for 5 years, or 60 months. So we have:

Loan payment = $180
n = 60

We need to find the principal, P. To do this, we can use trial and error or an online loan calculator.

Using an online loan calculator with an interest rate of 8.6%, we find that Phil can afford to borrow $8,752.84 to purchase a car.

Therefore, the best choice is C.

Phil Can Afford $180 a Month for 5 Years for a Car