Question

Todd is able to pay £160 a month for five years for a car. If interest rate is 4,9% per annum, how much can Todd afford to borrow to buy a car?

Answer 1

B. $8,499.13

Step-by-step explanation:

The amount that Todd will be able to borrow is the equivalent of a monthly payment of £160 for five years at 4.9%.

The applicable formula is the annuity formula as below

Present Value of Annuity: PV = P × 1 − (1+r)−^n

r

Since the payments are monthly

pv= value of loan

P= 160,

r= 4.9% divided by 12

n= 12 months multiplied by five years

Pv = 160 x 1 - (1+0.0041)^-60

0.0041

pv = 160 x 1 - 0.78232

0.0041

Pv = 160 x (0.2178/0.0041)

Pv= 160 x 53.12

pv =£8,499.2