Question

Sebastian has just graduated after four years of university. He took out an unsubsidized Stafford loan worth $8,180 to help pay for his tuition. The loan has a duration of ten years. If the loan has an interest rate of 5.3%, compounded monthly, how much interest capitalization has occurred by the time he graduated? Round all dollar values to the nearest cent.

a.


$721.93



b.


$842.25



c.


$1,926.97



d.


$1,734.24

Answer 1

The answer would be C. 1,926.97 :)

Answer 2

Option C

Explanation:

Principal,P = $8180

Time = 10 years

Rate,R = 5.3% compounded monthly

Formula:
`P(1+(R)/(n) )^(nt)`, where n is the number of times interest is compounded that is monthly, quarterly, yearly.

Now, we have to calculate the interest by the time Sebastian has graduated that is the time now is 4 years, t = 4 and n = 12, because the interest is compounded monthly.

Puttin all the values in the formula

Amount =
`8180(1+ (5.3)/(1200) )^(48)` = 10106.9707$

Also, Interset = Amount - Principal

Interest = 10106.9707$ - 8180$ = 1926.97074$

Option C