Question

2. It’s time for Ronda to start repaying her student loans, which are amortized over the next 10 years. Her first month’s payment due is $396. How much should she expect to pay next month?

Answer 1

Based on the amount that she paid in the first month, the amount Ronda will pay for the next month is $396.

When a loan is amortized, it means that one can pay it off by paying the same amount every period until they would have paid off both the loan and the associated interest.

The amortized amount contains:

• A portion going towards the principal(debt )
• A portion going towards the interest accumulated.

In conclusion, as the amount is the same every time, Ronda will have to pay the same amount of $396 the next month.

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