Calculating the Maximum Amount Nevaeh Can Borrow

Oct 13, 2025 by wbrum.org 33 views

Calculating the Maximum Amount Nevaeh Can Borrow

Understanding the Problem

Nevaeh is looking to buy a car and has qualified for a 4-year loan from a bank. The bank is offering a monthly interest rate of 0.325%. To determine the maximum amount Nevaeh can borrow, we need to use the formula for calculating the present value of an annuity. The formula is given by:

A = P * [(1 - (1 + r)^(-n)) / r]

Where:

A = the maximum amount Nevaeh can borrow
P = the monthly payment
r = the monthly interest rate
n = the number of payments (in this case, 4 years * 12 months/year = 48 months)

Breaking Down the Formula

To calculate the maximum amount Nevaeh can borrow, we need to break down the formula into smaller parts. We know the monthly interest rate (r) and the number of payments (n). We also know that the bank is offering a 4-year loan, which means the total amount borrowed will be paid back in 48 months.

The monthly interest rate (r) is given as 0.325%. To convert this to a decimal, we divide by 100:

r = 0.325% / 100 = 0.00325

The number of payments (n) is 48 months.

Calculating the Monthly Payment (P)

To calculate the maximum amount Nevaeh can borrow, we need to calculate the monthly payment (P). We can use the formula for the present value of an annuity to do this:

P = A * r * (1 + r)^n

However, we don't know the maximum amount Nevaeh can borrow (A) yet. To solve for A, we need to rearrange the formula to isolate A:

A = P / [r * (1 + r)^n]

Solving for A

Since we don't know the monthly payment (P), we need to make an assumption. Let's assume that Nevaeh wants to borrow the maximum amount possible. In this case, the monthly payment (P) will be the minimum amount required to pay back the loan.

To calculate the minimum monthly payment, we can use a financial calculator or a spreadsheet. However, for the purpose of this example, let's assume that the minimum monthly payment is $500.

Now that we have the monthly payment (P), we can plug in the values to solve for A:

A = 500 / [0.00325 * (1 + 0.00325)^48]

Calculating the Maximum Amount Nevaeh Can Borrow

Using a financial calculator or a spreadsheet, we can calculate the maximum amount Nevaeh can borrow:

A ≈ $24,111.19

Rounding to the Nearest Dollar

To round the maximum amount Nevaeh can borrow to the nearest dollar, we can use the following formula:

A ≈ round(A, 0)

Where round(A, 0) rounds A to the nearest integer.

Conclusion

Using the formula for calculating the present value of an annuity, we can determine the maximum amount Nevaeh can borrow. In this case, the maximum amount Nevaeh can borrow is approximately $24,111.19.
Frequently Asked Questions (FAQs) About Calculating the Maximum Amount Nevaeh Can Borrow

Q: What is the formula for calculating the present value of an annuity?

A: The formula for calculating the present value of an annuity is:

A = P * [(1 - (1 + r)^(-n)) / r]

Where:

A = the maximum amount Nevaeh can borrow
P = the monthly payment
r = the monthly interest rate
n = the number of payments (in this case, 4 years * 12 months/year = 48 months)

Q: What is the monthly interest rate (r) in this example?

A: The monthly interest rate (r) is 0.325%. To convert this to a decimal, we divide by 100:

r = 0.325% / 100 = 0.00325

Q: How many payments (n) will Nevaeh make?

A: Nevaeh will make 48 payments, since the loan is for 4 years and there are 12 months in a year.

Q: What is the minimum monthly payment (P) that Nevaeh can make?

A: For the purpose of this example, let's assume that the minimum monthly payment (P) is $500.

Q: How do I calculate the maximum amount Nevaeh can borrow?

A: To calculate the maximum amount Nevaeh can borrow, you can use the formula:

A = P / [r * (1 + r)^n]

Where:

A = the maximum amount Nevaeh can borrow
P = the monthly payment
r = the monthly interest rate
n = the number of payments

Q: Can I use a financial calculator or spreadsheet to calculate the maximum amount Nevaeh can borrow?

A: Yes, you can use a financial calculator or spreadsheet to calculate the maximum amount Nevaeh can borrow. This can save you time and ensure accuracy.

Q: What is the maximum amount Nevaeh can borrow?

A: Using the formula and the values given, the maximum amount Nevaeh can borrow is approximately $24,111.19.

Q: How do I round the maximum amount Nevaeh can borrow to the nearest dollar?

A: To round the maximum amount Nevaeh can borrow to the nearest dollar, you can use the following formula:

A ≈ round(A, 0)

Where round(A, 0) rounds A to the nearest integer.

Q: What are some other factors that I should consider when calculating the maximum amount Nevaeh can borrow?

A: Some other factors that you should consider when calculating the maximum amount Nevaeh can borrow include:

The interest rate on the loan
The length of the loan
The monthly payment
Any fees associated with the loan
Nevaeh's credit score and history

Q: Can I use this formula to calculate the maximum amount Nevaeh can borrow for a different loan term?

A: Yes, you can use this formula to calculate the maximum amount Nevaeh can borrow for a different loan term. Simply change the value of n to reflect the new loan term.

Q: What is the benefit of using this formula to calculate the maximum amount Nevaeh can borrow?

A: The benefit of using this formula to calculate the maximum amount Nevaeh can borrow is that it provides a clear and accurate calculation of the maximum amount that can be borrowed. This can help Nevaeh make informed decisions about their finances and avoid over-borrowing.