Question

While Mary Corens was a student at the University of Tennessee, she borrowed $14,000 in student loans at an annual interest rate of 7%. If Mary repays $1,800 per year, then how long (to the nearest year) will it take her to repay the loan? Do not round intermediate calculations. Round your answer to the nearest whole number.

Answer 1

The number of years needed to repay the loan is 11.47 years or 11 years.

Explanation:

The loan amount, Present value = $14000

Annual repayment amount (annuity) = $1800

Interest rate = 7% per annum.

Now we have to find the number of years consumed to repay the loan amount. Below is the calculation.

Present value = (Annuity[1-(1+r)^-n] )/ r

14000 = (1800 × [1- (1+ 0.07 )^-n] )/ 0.07

14000 × 0.07 = 1800 × [1- (1+ 0.07 )^-n]

980 = 1800 × [1- (1+ 0.07 )^-n]

0.54 = [1- (1+ 0.07 )^-n]

n = 11.47 or 11 years.