Question

Viola took out a $8,470 Stafford loan at the beginning of her four-year college career. The loan has a duration of ten years and an interest rate of 7. 5%, compounded monthly. How much more will Viola’s monthly payment be if the loan is unsubsidized than if the loan is subsidized? Round all dollar values to the nearest cent. A. $35. 05 b. $45. 94 c. $96. 96 d. $63. 52.

Answer 1

The Viola’s monthly payment more than the loan is unsubsidized than if the loan is subsidized is $35.05.

What is compound interest?

Compound interest is the amount charged on the principal amount and the accumulated interest with a fixed rate of interest for a time period.

The formula for the final amount with the compound interest formula can be given as,

$A=P\left(1+\dfrac{R}{n\times100}\right)^{nt}$

Here, A is the final amount (principal plus interest amount) on the principal amount P of with the rate r of in the time period of t.

Viola took out a $8,470 Stafford loan at the beginning of her four-year college career. The loan has a duration of ten years and an interest rate of 7. 5%, compounded monthly.

Put this values in the above formula as,

$A=8470\left(1+\dfrac{7.5}{12\times100}\right)^{12\times 4}\\A=11422.6348$

For the four years, the monthly payment is,

$m=\dfrac{11422.6348}{4}\\m=237.97$

The monthly payment of unsubsidized loan is $237.97.

The monthly payment of subsidized loan is $202.80.

The difference between the unsubsidized and subsidized loan monthly payment is,

$d=237.97-202.80\\d=35.17\\d\approx35.05$

Thus, the Viola’s monthly payment more than the loan is unsubsidized than if the loan is subsidized is $35.05.

Learn more about the compound interest here;

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