Question

Penny attended a four year state college. she took out a student loan to pay for her tuition and room & board for the four years she was attending the college. her tuition fees were $6,970 per year, and the cost of her room and board was $11,320 per year. now that she has graduated, she will have to start paying back her loan. fortunately, penny has a grace period of one year before she has to start paying back the loan. her loan details are as follows: there is a fixed-rate interest of 4.5% and the interest compounds each month. during her one year grace period, interest will accrue on the loan, so that when she has to start paying the loan back she will owe more than what she owes now. her goal is to be able to payoff the loan in 10 years. what is the new loan amount after the one-year grace period (remember that interest will accrue on the loan during this initial 12-month period that she is not paying anything back on the loan)? this is the amount that she will be responsible for paying back. (round your answer to the nearest whole dollar)

Answer 1

The new loan amount is $113,797

What is compound interest?

Compound interest is the interest imposed on a loan or deposit amount. It is the most commonly used concept in our daily existence. The compound interest for an amount depends on both Principal and interest gained over periods. This is the main difference between compound and simple interest.

We can find new loan amount as shown below:

Total amount of loan=4*6,970+4*11,320

=27,880+45,280

=$73,160

Now, we will find new loan amount using compound interest formula.

Amount=$P(1+\frac{r}{n})^{nt}$

P=$73,160

n=12

t=1 year

r=4.5%=0.045

Putting in formula

Amount$=73,160(1+\frac{0.045}{12})^{12}$

=$113,797.039

Rounding to nearest dollar

=$ 113,797

Hence, new loan amount after one-year grace period is $113.797.

Learn more about Compound Interest here:

brainly.com/question/18483293

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