You can afford to make monthly payments of $400 for 60 months to buy a new car. Assuming you can borrow at 6% per year interest, how would you figure out how much money you can borrow?
A) Ask your dad
B) Use present value of an annuity calculation
C) Use future value of annuity calculation
D) Not enough information given to determine answer

Question

Quizplus · Accepted Answer

To determine how much money you can borrow based on a fixed monthly payment, interest rate, and loan term, you would use the present value of an annuity calculation. This formula considers the interest rate and the number of payments to calculate the total amount you can borrow today, given the amount you can afford to pay each month.

You Can Afford to Make Monthly Payments of $400 for 60