Calibri B I U.abe x, x\' A.y-A.= t-- I 1 Painter Font Paragraph Back in the day,
ID: 3196944 • Letter: C
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Calibri B I U.abe x, x' A.y-A.= t-- I 1 Painter Font Paragraph Back in the day, a typical college student was able to complete their college degree within the time span of 4 years and get on with their life in the working world. In recent years, it seems as though finishing a degree in 4 years is more of a rarity and finishing in 5 or 6 years is more typical. Whether it be because of performing poorly in a class and needing to retake a class (sometimes multiple classes multiple times), or being indecisive and changing majors (one or more times), or for some other non-related college life issues, what is the "true" cost of a 5th or 6th year of schooling? In this project you will examine the "true" cost of taking one extra year to finish a 4 year degree Assumptions: You were originally slated to graduate at age 23 and you will now graduate at age 24. You plan to retire at age 62, when you do enter the workforce, you will earn a salary of $36,000 and you will invest 10% of your annual salary into retirement savings. To complete the extra year of schooling you will need to take out an additional student loan of $10,000. This loan will be paid back over the course of 15 years with at 6% APR. In addition to having an extra $10,000 in student loans, the extra year in school is one less year you will be in the workforce...one less year to save for retirement. Ameunt berrowed xrtr where r the APR (in the number of payments to be made over the course of the 1. Using the formula Monthly payment - (CL+r)F-1) decimal form divided by 12) and t loan, calculate the monthly payment for your student loan. show all your mathematics in a neat and orderly manner. Explain what your solution means in real life language. Calculate the total amount of all payments made. Show all your mathematics in a neat and orderly manner. Explain what your solution means in real life language. 2. Calculate how much of your payments went to pay for interest. Show all your mathematics in a neat and orderly manner. Explain what your solution means in real life language. 3. Since you have delayed entering the workforce and saving for retirement by one year, calculate the retirement savings and growth you are forfeiting by taking another year to complete your degree. Assume you would have saved 10% of your $36,000 salary. You would have deposited it when you were 23 and it would have grown at 8% compounded quarterly until you were ready to retire at age 62. (39 years) 4. Using the formula B 1+calculate the amount of retirement savings and growth you have forfeited by delaying your graduation and entry into the workforce. Show all your mathematics in a neat and orderly manner. Explain what your solution means in real life language. 5. Consider the cost and repayment of the additional student loan, the forfeited retirement savings and growth, and the forfeited salary. While this may be a crude estimate, what is the financial impact of a 5th year of schooling? (Be careful that you do not count the $3600 initial retirement investment twice.) Show all your mathematics in a neat and orderly manner. Explain what your solution means in real life language e here to searchExplanation / Answer
Ans 1.
r = 6/(100*12) = 0.005, t = 15*12 = 180 months
Monthly Payment = 10000*(0.005)*(1+0.005)^180 / [(1+0.005)^180-1] = $84.38
It means that, the student has to pay the amount of $84.38 per month so as to repay the student loan for the extra year.
Answer 2.
The total payment made = Monthly Payment * No of months = $84.38 * 180 = $ 15188.4
This means, the student will pay amount of $ 15,188.40 over a course of 15 years so as to repay the student loan for the extra year
Answer 3.
Amount Paid in Interest = Total Payment Made - Amount of Loan Taken = $ 15,188.40 - $ 10,000 = $ 5,188.40
This means that a total sum of $ 5,188.40 will be paid extra to the bank in the form of interest towards the loan taken for the additional year.
Answer 4.
P = 10% of 36000 = 3600
r = 0.08
n = 4 (compounded quaterly)
Total Saving [if one extra year not needed] = 3600(1 + 0.08/4)^(39*4) + 3600(1+0.08/4)^(38*4) + ... + 3600
Total Saving [if one extra year needed] = 3600(1 + 0.08/4)^(38*4) + 3600(1+0.08/4)^(37*4) + ... + 3600
Retirement Saving Fortfeited = Total Saving [if one extra year not needed] - Total Saving [if one extra year needed]
= 3600(1+0.08/4)^(39*4) = $ 79055
It means that, the difference in total saving at the end would be $79055
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