Answers SEPHS - BUS 240 - Personal Finance Summer Student LoansQuestion 12

12

QuizMultiple Choice

Student Loans

Question 12 • SEPHS - BUS 240 - Personal Finance (Summer)

Edgar has taken out a $6,250 unsubsidized Stafford loan to fund his four-year undergraduate degree. The loan has a duration of 10 years and an interest rate of 6.1%, compounded monthly. How much interest capitalization will have accrued by the time Edgar graduates? Round all dollar values to the nearest cent.

Answer

A

$1,670.30

B

$1,722.22

C

$664.35

D

$1,524.96

Explanation

Because the loan is unsubsidized, interest accrues while Edgar is in school. Use monthly compounding for four years: 48 months. The accrued interest is $6,250 × [(1 + 0.061/12)^48 − 1] = $1,722.22, rounded to the nearest cent. The correct choice is $1,722.22.

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