Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Question
Transcribed Image Text:**Practice Problem: Car Financing**
Now it’s time for you to practice what you’ve learned.
Suppose you have saved $3,500 for a down payment on a new car. The largest monthly payment you can afford is $375. The loan will have a 24% APR based on end-of-month payments.
*Use a financial calculator to determine the most expensive car you can afford if you finance it for 48 months versus 60 months.*
| Months Financed | Maximum Car Price |
|-----------------|-------------------|
| 48 | |
| 60 | |
*If you finance the car for a shorter period of time, you can afford a more expensive car.*
- ( ) True
- ( ) False
Expert Solution
Step 1: Introduction
To determine the maximum car price, we need to find the PV of the monthly payment and then add the downpayment to that amount.
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