Question

a student no he needs to borrow $10,000 to pay for college. She can get the loan at in APR of 8.25 % to be paid off in monthly installments over the next four years. question if she decides to pay the loan off in monthly installments over three years instead of four years at the given a PR, how much money will she save altogether round to the nearest cent

Answer 1

First, we need to determine how much she pays in 4 years

P = r( PV)

-----------

1 - ( 1+r) ^-n

where P = payment

PV = present value

r = rate per period

n = number of periods

PV = 10000

r = .0825/ 12 =.006875

n = 4 years = 48 months

P = .006875(10000)

----------------------

1-(1+.006875)^-48

The monthly payment is 245.30

Times 48 months = 11774.40

Changing to 3 years = 36 months

P = .006875(10000)

----------------------

1-(1+.006875)^-36

P = 314.52

Times 36 months =11322.72

Taking the difference

11774.40-11322.72=451.68

She will save 451.68