Pre-Calculus Finance Project

By Caroline White

Scenario #1

Hi, I’m Brent. I am a construction foreman and did not attend college. I am 24 years old, and my annual salary is $50,000. I just purchased a $23,000 car with a 6.50% 5 year car loan. I also want to by my first home in a few months!

My Monthly Budget

Car Insurance: $63.67

Food: $281

Utilities: $200

Cell Phone: $40


$7.99 (Hulu) + $8.25 (Amazon Prime) + $7.99 (Netflix) + $82.58 (gas) + $40 (internet and cable) + $20 (gym membership)

Total Monthly Expenses: $751.48

How did I find the budget for my house?

I took my monthly salary and subtracted the monthly car loan payment and taxes. After that I took my monthly salary (2,466.65) and subtracted my monthly expenses ($751.48) to find my possible budget (1,715.17).

What kind of a house can I afford?

I used the present value equation and plugged in my monthly payment and interest rate of 4.053%. I concluded that I can afford a house for $356, 973.19; however, I will purchase a house for $319,000 to avoid maxing out my budget.

My actual monthly payment

I plugged in the value of my house $319,000 into the present value equation and realized my actual monthly payment is $1532.72. Then I multiplied this number by 12 and 30 to find that I would actually pay $551,799.20 over the course of the loan.

If I increased my monthly payment by 15%...

To find my new payment, I multiplied my monthly payment (1532.72) by .15 and then added 1532.71. My new payment is therefore $1.762.63.

How long to pay off new amount?

I plugged in my new monthly payment ($1762.63) into the present value equation and concluded that it would take 23.351475 years to pay off my house with a 15% increase in monthly payment. The difference in total amount paid was $551,779.20-(1762.63(12)(23.351471) which was $57,859.08.
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