Douglas can afford 240$ a month for five years for a car loan. If the APR is 8.5%, how much can he afford to borrow to purchase a car if he has 10,000 as a down payment?

Douglas can afford 21697.88 to borrow to purchase a car.

Explanation:

As the formula for calculating present value is given as:

PV = PMT * ((1 - (1+r) ^-n) / r)

As Douglas can afford 240$ a month for five years for a car loan so

it means that payment = 240 $

As the APR is 8.5% which means after dividing by 12 the rate per month = 8.5%/12

Total number of Months = 5*12

Total number of Months = 60

Putting these values into the above formula, we get

PV = PMT * ((1 - (1+r) ^-n) / r)

PV = 240 * ((1 - (1+8.5%/12) ^-60) / (8.5%/12))

PV = 11697.88

As the down payment = 10,000 so the total value of car

= 11697.88+10000

= 21697.88

Douglas can afford 21697.88 to borrow to purchase a car.