Matthew Wants to Take Out a Loan to Buy a Car

question 11

Multiple Choice

Matthew wants to take out a loan to buy a car. He calculates that he can make repayments of $4 000 per year. If he can get a five-year loan with an interest rate of 7.5%, what is the maximum price he can pay for the car?

• A)$20 324
• B)$21 674
• C)$18 243
• D)$16 184

---

Definitions:

Promissory Note

A financial instrument containing a written promise by one party to pay another party a definite sum of money either on demand or at a specified future date.

Promissory Note

A financial instrument involving a written promise by one party to pay another a definite sum of money either on demand or at a specified future date.

Simple Interest

Interest calculated only on the original principal, not on the accumulated interest from previous periods.

Maturity Value

The amount payable to an investor at the end of a debt instrument's life, including both the principal and the interest.