Phil can afford $200 a month for 5 years for a car loan.If the interest rate is 7.5 percent,how much can he afford to borrow to purchase a car?

Question

Quizplus · Accepted Answer

Using the formula for calculating loan payments:
P = (r * A) / (1 - (1 + r)^(-n))
where P is the loan principal, A is the monthly payment, r is the interest rate, and n is the number of months.

We know A = $200, r = 0.075/12 (monthly interest rate), and n = 5 years * 12 months/year = 60 months.

Solving for P gives:
P = (0.00625 * 200) / (1 - (1 + 0.00625)^(-60))
P = $9,981.06

Therefore, Phil can afford to borrow $9,981.06 to purchase a car. Option C is the closest to this amount.

Phil Can Afford $200 a Month for 5 Years for a Car