Question

As an independent student Sally borrowed $4,000 her first semester of college through an Unsubsidized Stafford loan at 6.8% APR, compounded monthly. After her first semester, Sally was able to work her way through school and she graduated three years later without any additional loans. Since Sally did not make any loan payments while she was in school, what is her loan balance upon graduation?

Answer 1

Answer:

= $4902.36

Explanation:

The amount due on the loan would be equal to the total accrued interest plus the principal amount. Note that, since Sally did not pay any amount off the loan in the course of the three years, the interest due per month would be equal to the monthly interest rate plus the he unpaid balance till date.

To determine the amount due, we would compound $4,000 at a monthly interest rate of for 36 months

Amount due on loan  = Loan amount × (1+r)^n

Loan amount - 4,000, r - monthly interest rate - 6.8%/12 = 0.566%, n- 3× 12= 36

Loan amount due = 4000 × (1.005660^(36)

                             = $4,902.36