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Stephanie has $42,750 in student loans at a 6% compound interest

rate. If she decides to defer payment on the loan for two years, how
much additional interest will be added to the loan at the end of the
two-year deferment?

User Euronion
by
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1 Answer

10 votes

Final answer:

To calculate the additional interest accrued on Stephanie's student loan during a two-year deferment, we use the compound interest formula A = P(1 + r/n)^(nt), resulting in approximately $5,270.07 of interest.

Step-by-step explanation:

To determine how much additional interest Stephanie's student loan will accrue during a two-year deferment period, we need to use the formula for compound interest. The formula to calculate the future value of a compound interest loan is A = P(1 + r/n)nt, where:

  • A is the amount of money accumulated after n years, including interest.
  • P is the principal amount (the initial amount of money).
  • r is the annual interest rate (decimal).
  • n is the number of times that interest is compounded per year.
  • t is the time the money is invested or borrowed for, in years.

In Stephanie's case, P is $42,750, r is 6% or 0.06, n is typically compounded annually for student loans (n = 1), and t is 2 years. Hence, the formula becomes A = $42,750(1 + 0.06/1)1*2.

First, we calculate the growth factor: 1 + 0.06/1 = 1.06. Then raise it to the power of 2 (for the two years): (1.06)2. Subsequently, we multiply the principal by this factor: $42,750 * (1.06)2 ≈ $42,750 * 1.1236 ≈ $48,020.07.

Therefore, after two years, the loan will have grown to approximately $48,020.07. The additional interest added during the deferment is simply the difference between this future value and the original loan amount: $48,020.07 - $42,750 = $5,270.07.

So the additional interest that will be added to the loan at the end of the two-year deferment is approximately $5,270.07.

User Balla
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