Suppose you have saved $2,000 for a down payment on a new car. The largest monthly payment you can afford is $400. The loan will have a 12% APR based on end-of-month payments. Using this information and a financial calculator, you want to determine the most expensive car you can afford if you finance it for 60 months. In order to do this, you need to determine the values for the following variables: - N: number of payments - I/M: periodic interest rate - PMT: payment - FV: future value The number of payments will depend on how long you will finance the purchase. Enter the appropriate value for N in the input row of the following table. You are cold that the APR is 12% for this loan. However, the rest of the values for this problem are given in months, not years. This means there are periods per year, and the APR has to be divided by this number to determine the periodic rate. Enter the appropriate value for 1/Y in the input row of the previous table. Enter the appropriate value for the monthly ioan payment in the input row of the previous table. (Hint: You should enter the payment as a negative number so that the caiculated vaiue for present value will be positive.) For the remaining values in the previous table, the future value is going to be zero and the present value is what you're solving for to determine the loan amount. Using a financial calculator and the values in the previous table, compute the present value of this series of payments and enter it into the final row of the table. (Hint: Remember to hit "2nd" and "FV" to clear out the time value of money.) Therefore, the most expensive car you can afford to purchase with this loan and your $2,000 down payment is Step 3: Practice: Present Value and Loan Eligibility Now it's time for you to practice what you've learned. Suppose you have saved $4,000 for a down payment on a new car. The largest monthly payment you can afford is $325. The loan will have a 12% APR based on end-of-month payments. Use a financlal calculator to determine the most expensive car you can afford if you finance it for 60 months versus 72 months. If you finance the car for a shorter period of time, you can afford a more expensive car. True Faise
