Joe wants to buy a new car by borrowing the money. He also wants to make escalated monthly payments each month. He wants to start with $200 as his first payment an then it increases by $10 per month every month. So, the payments would look like this:1-$200, 2-$210, 3-$220, 4-$230.......and do on for entire term of the loan, which is 5 years or 60 months. His car loan would charge interest of 6% compounded monthly.
What is the amount of the loan that Joe can borrow? Thanks for help.
There are a number of ways of solving this question using only TVM formulas. But at least 2-3 of them would have to be used to solve this. Most of these TVM formula use PV to find the amount of the loan. But here, I'm going to use "Summation Formula" and have a solver such as Wolfram/Alpha to give an instantaneous answer.Here is the "Summation Formula":
∑[(200+10n) /1.005^(n+1), n=0 to 59] =$24,831.57 Is the loan that Joe can afford.
