Problem:
You have saved $4,000 for a down payment on a new car. The largest monthly payment you can afford is $400. The loan will have a 12% APR based on end-of-month payments.
Required:
Question 1: What is the most expensive car you could afford if you finance it for 48 months?
Question 2: What is the most expensive car you could afford if you finance it for 60 months?
Note: Please provide reasons to support your answer.