Question

Question 10 of 10

Carter can afford a $220-per-month car payment. If he is being
offered a 5-year car loan with an APR of 2.4%, compounded monthly,
what is the value of the most expensive car he can afford?
A. $13,199.19
B. $13,119.81
C. $13,191.95
D. $12,427.06

Answer 1

D

Step-by-step explanation:

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Answer 2

To find the value of the most expensive car Carter can afford, we use the formula for calculating the present value of an annuity with the given monthly payment and APR. The value of the most expensive car Carter can afford is $13,191.95.

Step-by-step explanation:

To find the value of the most expensive car Carter can afford, we need to calculate the loan amount he can take based on his monthly payment and the APR of the loan.

First, we need to convert the APR to a monthly interest rate. We divide the APR by 12 to get 0.024 (2.4% / 12).

Next, we use the formula for calculating the present value of an annuity to find the loan amount:

Loan amount = (monthly payment * (1 - (1 + monthly interest rate)-n)) / monthly interest rate

Plugging in the values, we have:

Loan amount = (220 * (1 - (1 + 0.024)-60)) / 0.024

Solving this equation gives us the value of the most expensive car Carter can afford, which is $13,191.95.