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Using the Finance Solver 10-5
Example 1 - Loan calculations
Suppose you finance the purchase of a car with a 5-year
loan at 5.5% annual interest, compounded monthly. The
purchase price of the car is $19,500, and the down
payment is $3,000. What are the required monthly
payments? What is the largest loan you can afford if your
maximum monthly payment is $300? Assume that the
payments start at the end of the first period.
Solution. The following cash flow diagram illustrates the
loan calculations:
Start the Finance Solver, selecting P/YR = 12 and End
payment option.
• Enter the known TVM variables as shown in the
diagram above. Your input form should look as
follows:
• Highlighting the PMT field, press the soft
menu key to obtain a payment of -315.17 (i.e., PMT
= -$315.17).
• To determine the maximum loan possible if the
monthly payments are only $300, type the value -
300 in the PMT field, highlight the PV field, and press
the soft menu key. The resulting value is PV =
$15,705.85.
PV = $16,500
1
2
59
60
FV = 0
l%YR = 5.5
N = 5 x 12 = 60
P/YR = 12; End mode
PMT = ?