Question

Luke took out a 10-year Federal Direct Unsubsidized loan for $17,000 with a 5.29% APR. If he makes no payments during the first 4.5 years, what will the new loan amount be?

17000.00
19726.35
17895.75
O$21406.85

Answer 1

$21046.85

Explanation:

You want the new amount of a $17,000 loan at 5.29% APR if no payments are made and the interest is capitalized after 4.5 years.

Interest

The simple interest on the loan is given by the formula ...

I = Prt

where P is the principal at rate r for t years.

The interest on $17,000 at 5.29% for 4.5 years is ...

I = $17,000·0.0529·4.5 = $4046.85

New loan amount

When that interest is added to the original loan value, the new loan amount will be ...

$17,000 +4,046.85 = $21046.85

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Additional comment

The last answer choice, $21406.85, seems to have two digits reversed. That is closest to the correct answer.