Question

Ron has $52,000 remaining on his student loan with an annual interest rate of 8%. He plans to pay off the loan in 20

years. Assume that he can refinance his loan at 6%. Use the table below to answer the questions.
a) What are his monthly payments on the original loan? $
b) How much will his new monthly payment be?
$
3 years
4 years
$29.53
$22.58
29.97
23.03
30.42
23.49
31.34
24.41
32.27
25.36
33.21
26.33
Monthly payments on a $1,000 loan.
r
4%
5%
6%
8%
10%
12%
10 years
$10.12
10.61
11.10
12.13
13.22
14.35
20 years
$6.06
6.60
7.16
8.36
9.65
11.01
30 years
$4.77
5.37
6.00
7.34
8.78
10.29

Answer 1

Ron's original monthly payments on his student loan would be $434.72, and after refinancing at a lower interest rate of 6%, his new monthly payment would be $372.32.

Step-by-step explanation:

Ron has a student loan of $52,000 with an annual interest rate of 8% which he plans to pay off in 20 years.

To calculate his monthly payments on the original loan, we can use the monthly payment table provided for a $1,000 loan.

For a 20-year loan at 8%, the monthly payment is $8.36 per $1,000.

Thus, for $52,000: $8.36 \/ $1,000 × $52,000

= $8.36 × 52

= $434.72

a) Ron's monthly payments on the original loan would be $434.72.

If Ron refinances his loan to an interest rate of 6%, we use the 6% column for a 20-year term.

The table shows a monthly payment of $7.16 per $1,000.

For $52,000: $7.16 \/ $1,000 × $52,000

= $7.16 × 52

= $372.32

b) Ron's new monthly payment after refinancing would be $372.32.