Some lending institutions calculate the monthly payment M on a loan of L dollars at an interest rate r (expressed as a decimal) by using the formula: $M = \frac { L r k } { 12 ( k - 1 ) }$ where k = [1 + ( r / 12 )]¹²^t and t is the number of years that the loan is in effect. An automobile dealer offers customers no-down-payment 8-year loans at an interest rate of 10%. If a customer can afford to pay $122 per month, find the price of the most expensive car that can be purchased. A) $ 8,050.00 B) $ 8,045.62 C) $ 8,039.98 D) $ 8,048.79 E) $ 8,029.63

Question

Quizplus · Accepted Answer

To find the price of the most expensive car, solve for L in the formula $M = \frac { L r k } { 12 ( k - 1 ) }$. Given M = $122, r = 0.10, and t = 8, calculate k and substitute these values into the formula to find L. The correct calculation gives L ≈ $8,039.98.

Some Lending Institutions Calculate the Monthly Payment M on a Loan