Question

Horatio has taken out a $12,450 unsubsidized Stafford loan to pay for his four-year undergraduate education. The loan has an interest rate of 7.3%, compounded monthly, and a duration of ten years. Horatio will allow interest capitalization. Making monthly payments, how much interest will Horatio have paid in total by the time the loan is paid in full? Round all dollar values to the nearest cent.
a. $11,068.80
b. $5,128.80
c. $2,962.32
d. $8,170.08

Answer 1

Answer:

Explanation:

We solve by first, getting the quota Horatio pays on his loan:

$PV \div \frac{1-(1+r)^{-time} }{rate} = C$

PV 12,450

time: 10 yearss x 12 months per year = 120

monthly rate: 7.3% / 12 = 0.006083333

$12450 \div \frac{1-(1+0.006083333)^{-120} }{0.006083333} = C$

C  $ 146.487

Now, we miltiply the quota by the quantity of payment ans subtract the principal to get the amount of interest paid:

quota times quantity of monthly payment: total amount paid

less principal: interest paid.

146.49 x 120 - 12,450 = 5,128,80