Question

At the beginning of each of her four years in college, Miranda took out a new Stafford loan. Each loan had a principal of $5,500, an interest rate of 7.5% compounded monthly, and a duration of ten years. Miranda paid off each loan by making constant monthly payments, starting with when she graduated. All of the loans were subsidized. What is the total lifetime cost for Miranda to pay off her 4 loans? Round each loan's calculation to the nearest cent. a. $23,650.00 b. $29,481.08 c. $7,834.32 d. $31,337.27 ECONOMICS

Answer 1

Answer:

D. $31,337.27

Step-by-step explanation:

We have that the initial amount of the loan is $5500.

Miranda took the loan for 4 years. So, the total present value is $5500×4 = $22,000.

The rate of interest on the loan is 7.5% i.e. 0.075 and it was for the duration of 10 years.

Also, it is given that the loan was compounded annually.

We have the formula as,

$P=\frac{\frac{r}{n}\times PV}{1-(1+\frac{r}{n})^{-t\times n}}$

i.e. $PV=\frac{P\times [1-(1+\frac{r}{n})^{-t\times n}]}{\frac{r}{n}}$

Substituting the values, we get,

i.e. $PV=\frac{P\times [1-(1+\frac{0.075}{12})^{-10\times 12}]}{\frac{0.075}{12}}$

i.e. $22000=\frac{P\times [1-(1+0.00625)^{-120}]}{0.00625}$

i.e. $22000=\frac{P\times [1-(1.00625)^{-120}]}{0.00625}$

i.e. $22000=\frac{P\times [1-0.4735]}{0.00625}$

i.e. $22000=\frac{P\times 0.5265}{0.00625}$

i.e. $P=\frac{22000\times 0.00625}{0.5265}$

i.e. $P=\frac{137.5}{0.5265}$

i.e. $P=261.16$

Thus, the total lifetime cost to pay of the loans compounded annually  = 261.16 × 120 = $31,339.2

Hence, the total cost close to the answer is $31,337.27

Answer 2

Answer:

D. $31,337.27

Step-by-step explanation: