The figure below is a contour diagram of the monthly payment...

The figure below is a contour diagram of the monthly payment on a 5-year car loan as a function of the interest rate and the amount you borrow. The interest rate is 13% and you borrow $5000 for a used car. loan amount ($) 8,000 7,000 6,000 5,000 4,000 3,000 2,000 1 3 5 7 9 11 13 15 interest rate (%) 140 120 100 80 60 (a) What is your monthly payment? $ (b) If interest rates drop to 11%, how much more can you borrow without increasing your monthly payment? $ (c) Suppose your monthly payment is $120. Complete the table below showing how much you can borrow, without increasing your monthly payment, as a function of the interest rate. Interest rate 1% 3% 5% 7% Loan amount $ $ $ $

Transcript

00:04 Now here we have a figure which basically is a contour diagram of the month's payment on a five year car loan as a function of interest rate and money borrow.

00:13 So this is a money you borrow and this is the interest rate and this is how much you better pay.

00:19 So now basically suppose your interest rate is 13, right? so basically look at this line and you borrow 5 ,000.

00:27 So look at this part.

00:28 So basically how much you have to pay? why is given by this point, right? so that is something between 100 and 1 .1.

00:34 So you put it to be 114, that's very reasonable, right? very reasonable, i think.

00:41 Actually, i think it's, i would say it's a little bit more than 114.

00:45 I would think it's 116 or something, right? so, but actually, 114 is acceptable, it's something between 100 and i think it's 100 between something, something between 115 and 120, okay? so anyway, that's the value indicated by this point, right? so it would be, if usual line probably something, the contour line would be something here, right? and that might be, i think, 116.

01:07 So i would think it's 116.

01:09 If the interest rate drop to 11%, how much you have to pay.

01:13 How much can you borrow without increasing amount of payment? so, and then we have to look at another line, right? so 11%.

01:21 And you have to, you see that, let me put out this line.

01:26 I suppose we look at this line, okay? let me put it out.

01:30 That's how much you would pay.

01:32 And so you look at 11%.

01:34 And obviously your borrower has increased a bit, right? you look at steel points on this line, right? so this is your orange implant.

01:42 I did not draw it very well.

01:44 It should pass through their point anyway.

01:46 And so let me join it even better...

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