Question

john and steve are 22 years old inseparable twins, from odd jobs and occasional birthday and Christmas checks from various relatives they have managed to save $50,000. they are considering buying a boat and sailing around the world for three years. they will then sell the boat and join the family accounting business. they plan to use the money saved for food and fuel during the three years travel. they plan to borrow the purchase price of the boat from a bank , and plan to have a total 3,000 a month from their trust fund auto-deposited as repayment of the loan. what is the highst price they can afford for a sailboat ? the bank will charge them 4.5% annualy. show timelines, formulas. calculations and grid method

Answer 1

Monthly installment = $ 3,000

Annual interest rate = 4.5%

Monthly interest rate = 0.375 % = 0.00375

In this case, we assume that the loan repayment period is 3 years i.e. 36 months.

Formula for EMI is: EMI = P * r * (1+r)ⁿ / [ (1 +r)ⁿ - 1]

Here, 3000 = P * 0.00375 * (1 + 0.00375)³⁶ / [ (1 + 0.00375)³⁶ - 1 ]

P = $ 100,850.76

Highest price of the boat will be $ 100,850.76

If the repayment period is changed , then the highest price of boat will also change.