Question

Maria took out an unsubsidized Stafford loan of $6,925 to pay for college. She plans to graduate in 4 years. The loan had a duration of ten years and an interest rate of 5.0%, compounded monthly. By the time Maria graduates, how much greater will the amount of interest capitalized be than the minimum amount that she could pay to prevent interest capitalization? Round all dollar values to the nearest cent.

Answer 1

$144.70

Explanation:

Calculation to determine how much greater will the amount of interest capitalized be than the minimum amount that she could pay to prevent interest capitalization

First step is to determine the Interest only monthly repayments

Using this formula

I=Prt

where,

P=$6925

r=0.05/1

t=1

Let plug in the formula

I=6925*0.05/12

I= $28.854166666

Second step is to determine the amount she will owe after 4 years

Using this formula

S=P(1+r)n

Let plug in the formula

S=6925*(1+0.05/12)4*12

S=6925*(1+0.05/12)48

S=$8454.70

Third step is to determine the Interest part

Interest =8454.70 - 6925

Interest = $1529.70

Now let determine the how much greater will the amount of interest capitalized be

Interest capitalized=1529.70 - 1385.00

Interest capitalized =$144.70

Therefore how much greater will the amount of interest capitalized be than the minimum amount that she could pay to prevent interest capitalization is $144.70