6. When Sam graduates in May he will owe $37,500 in student loans at a rate of 5
ID: 2782306 • Letter: 6
Question
6. When Sam graduates in May he will owe $37,500 in student loans at a rate of
5.75% compounded monthly.
a. Find the value of his monthly payments if he is to pay this loan off in i. 15 years,
ii. 20 years. Enter these amounts in the table below in part b. Enter your
computation formula & number substitution here.
b. How much of the total repayment of this loan is
interest for option i? option ii?
Years
15
20
payment amount
interest paid
c. If the financial institution holding Sam’s loan holds $10 billion dollars of such loans, how much money could this institution make (in one year) if the rate were raised form 5.75% to 6.25%(both compounded monthly)?
Years
15
20
payment amount
interest paid
Explanation / Answer
All calculations are done using BA II PLUS CALCULATOR
a. Taking -37500 PV, 15*12= 180 N, 5.75/12= 0.479 I/Y CPT PMT= $311.403 ( MONTHLY PAYMENT)
TOTAL PAYMENT= 311.403*12*15= $ 56052.54
INTEREST AMOUNT = TPTAL PAYMENT- PRINCIPAL AMOUNT= (56052.54-37500)= $18552.54
Taking -37500 PV, 20*12= 240 N, 5.75/12= 0.479 I/Y CPT PMT= $263.281( MONTHLY PAYMENT)
TOTAL PAYMENT= 263.281*12*20= $63187.44
INTEREST AMOUNT = TPTAL PAYMENT- PRINCIPAL AMOUNT= (63187.44-37500)= $25687.44
YEARS 15 20 PAYMENT AMT. $311.403 $263.281 INTEREST PAID $18552.54 $25687.44
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