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3. Sam can afford to spend $500 per month on a car. He figures he needs half of itfor gas,
parking, and insurance. He has been to the bank, and they will loan him 100% of the car’s
purchase price. (a) [10 points] If his loan is at a nominal 12% annual rate over 3 years, what is the most
expensive car he can purchase? [b] [10 points] The car he likes costs $14,000 and the dealer will finance it over 60 months at
12%. Can he afford it? (c) [10 points] {Sub-question [bl continues] If not, then he needs to put a down payment to
reduce the required monthly repayment. How many months will he need to save the down
payment with his $500 per month?

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(c) [20 points] If he buys the car priced at $14,000 now, what is the highest interest rate he can
afford to plain,r it off over 60 months and stein,r with his budget?

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