Helena has taken out a $9,300 unsubsidized Stafford loan to pay for her college education. She plans to graduate in four years.
The loan has a duration of ten years and an interest rate of 6.4%, compounded monthly. By the time Helena graduates, how much greater will the amount of interest capitalized be than the minimum amount that she could pay to prevent interest capitalization? Round all dollar values to the nearest cent.
The effective annual interest rate is: i = (1 + 0.064/12)^12 - 1 = 0.066 In year 1: the interest is $613.80 (multiple $9300 by 0.066) In year 2: the interest is $654.31 (add interest from year 1 to $9300 and multiply by 0.066) In year 3: the interest is $656.98 (do the same as year 2) In year 4: the interest is $657.16
The total interest is: $2582.25 The present worth of this amount is: P = 2582.23 / (1 + 0.066)^4 = $1999.72
