Question

A student is graduating from college in 18 months but will need a loan in the amount of $6,720 for the last three semesters. the student may receive either an unsubsidized stafford loan or a plus loan. the terms of each loan are: unsubsidized stafford loan: annual interest rate of 3.99%, compounded monthly, and a grace period of six months from time of graduation. plus loan: annual interest rate of 4.99%, compounded monthly, with a balance of $7,241.17 at graduation which loan will have a higher balance and by how much at the time of repayment? a. the stafford loan will have a higher balance by $107.41 at the time of repayment. b. the plus loan will have a higher balance by $107.41 at the time of repayment.c. the stafford loan will have a higher balance by $36.53 at the time of repayment. d. the plus loan will have a higher balance by $36.53 at the time of repayment.

Answer 1

To compare the balances of the unsubsidized Stafford loan and the PLUS loan at the time of repayment, calculate the balance for each loan after 18 months. The PLUS loan will have a higher balance by $688.64 at the time of repayment.

Step-by-step explanation:

To compare the balances of the unsubsidized Stafford loan and the PLUS loan at the time of repayment, we need to calculate the balance for each loan after 18 months.

1. For the unsubsidized Stafford loan:

• Principal amount = $6,720
• Interest rate per month = 3.99% / 12 = 0.3325%
• Number of months = 18
• Balance = Principal amount * (1 + Interest rate per month)Number of months = $6,720 * (1 + 0.003325)18 = $6,720 * 1.0653 = $7,144.18

For the PLUS loan:

• Principal amount = $7,241.17
• Interest rate per month = 4.99% / 12 = 0.4158%
• Number of months = 18
• Balance = Principal amount * (1 + Interest rate per month)Number of months = $7,241.17 * (1 + 0.004158)18 = $7,241.17 * 1.0788 = $7,832.82

Therefore, the PLUS loan will have a higher balance by $688.64 at the time of repayment.

Answer 2

The Stafford loan will have a higher balance by $36.53 at the time of repayment.

Step-by-step explanation:

Got it right on the test!