Question

Britta has been accepted into a 2-year medical assistant program at a career school. She has been awarded a $6,000 unsubsidized 10-year federal loan at 4.29%. She knows she has the option of beginning repayment of the loan in 2.5 years. She also knows that during this nonpayment time, interest will accrue at 4.29%.

If Britta decides to make no payments during the 2.5 years, the interest will be capitalized at the end of that period. What will the new principal be when she begins making loan payments?

Answer 1

$6,645.75

Explanation:

Find the interest accrued during 2.5 years:

Principal (P) = $6,000

Annual interest rate (r) = 4.29%

Time (t) = 2.5 years

Interest (I) can be calculated using the formula: I = P * r * t

I = $6,000 * 0.0429 * 2.5 = $645.75

Add the interest accrued to the original loan amount to get the new principal:

New Principal = Original Principal + Interest Accrued

New Principal = $6,000 + $645.75

Now, calculate the new principal:

New Principal = $6,645.75

So, when Britta begins making loan payments after 2.5 years, the new principal will be $6,645.75.