Question

A person took out a $50,000 student loan in college and now have to pay this loan off in 10 years, starting one year from now. The annual interest rate on the loan is 3.5%. If this person needs to pay a constant amount every year. How much this person needs to pay per year. A person took out a $50,000 student loan in college and now have to pay this loan off in 10 years, starting one year from now. The annual interest rate on the loan is 3.5%. If this person needs to pay a constant amount every year. How much this person needs to pay per year]

Answer 1

To pay off a $50,000 student loan in 10 years with an annual interest rate of 3.5%, the person needs to pay $5,638.50 per year.

Step-by-step explanation:

To determine how much a person needs to pay each year to pay off a $50,000 student loan over 10 years with an annual interest rate of 3.5%, we would use the formula for an amortizing loan. This calculation is based on an annuity formula, which considers the present value of a series of equal payments at a fixed interest rate over a specified period. To calculate the constant amount that this person needs to pay per year, we can use the formula for the annuity payment of a loan. The formula is:

Payment = (Loan Amount * Interest Rate) / (1 - (1 + Interest Rate)^(-Number of Years))

In this case, the loan amount is $50,000, the interest rate is 3.5% or 0.035, and the number of years is 10. Plugging in these values into the formula, we get:

Payment = (50000 * 0.035) / (1 - (1 + 0.035)^(-10))

Solving this equation, the person needs to pay $5,638.50 per year to pay off the loan in 10 years.