I want to buy a car.
I know the following:
- monthly payment
- interest rate
- # of months of loan
- downpayment %
How can I calculate the total MSRP I can get for my monthly payment?
So for example:
I can afford $200 a month
My interest rate is 2.9%
I want a 60 month loan
My downpayment will be %20 of the MSRP
The present value of the amortized loan can be found by $$ \text{PV} = \text{PMT}\frac{1-(1+i/12)^{-n}}{i/12} $$ where $i = 0.029$, PMT$=200$, and $n = 60$. The amortized loan is great than $80\%$ cost though since the bank needs to make money on the transaction.
I am not sure how we can tease out the interest over the life of amortized loan. Once we have that, we simply divide by $0.8$ to get the MSRP of the car.
The sad part is I have a degree in Finance as well. I just never use it and didn't keep any of my books. Maybe there is another formula we should use but I cant remember. What formulas do you have at your disposal?