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A set of clients are seeking car loan financial advice. They are able to make monthly payments of $350
on a 6-year car loan. You know that the car dealership is able to offer them an annual interest rate of 4%.
How large of a loan can they get?
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Use the formula for the monthly payment for a loan
M =
where L is the loan amount; r = is the effective interest rate per month;
n is the number of payments (same as the number of months); M is the monthly payment.
From this formula, the expression for the maximum loan is
L = .
In this problem M = $350; r = , n = 6*12 = 72 monthly payments.
Substitute these values into the formula and get for the maximum loan amount
L = = $22,371.11 (rounded to the closest greater cent).
ANSWER. The maximum loan amount is $22,371.11.
Solved.