Question

John has just graduated from State University. He owes $35,000 in college loans, but he does not have a job yet. The college loan company has agreed to give John a break on a deferred-payment plan that works as follows. John will not have to repay his loan for 5 years. During this “grace period” the loan obligation will compound at 4% per year. For the next 5 years, a monthly payment will be required, and the interest rate will be 0.5% per month. What will be John’s monthly payment over the 60-month repayment period?

Answer 1

Answer:

The correct response is "821.88". A further explanation is given below.

Explanation:

According to the question,

The largest amount unresolved after five years would have been:

= $35000\times (\frac{F}{P}, 4 \ percent,5 )$

= $35000\times 1.216 7$

= $42584.50$

Now,

time (t) will be:

= $5\times 12$

= $60 \ monthly \ payments$

So, monthly payment will be:

= $42582.85\times (\frac{A}{P}, 0.5 \ percent,60 )$

= $42584.50\times 0.0193$

= $821.88$