In: Finance
Bob has $7938 in student loans to repay, starting a year from now. The loan interest rate is 5%. If he repays $1429 annually at the end of each year, how long will it be before the loan to paid off? Round to the nearest year.
Given,
Loan amount = $7938
Interest rate (r) = 5% or 0.05
Annual repayment (A) = $1429
Solution :-
Let number of years be 'n'
Now,
Loan amount = A/r x [1 - (1 + r)-n]
$7938 = $1429/0.05 x [1 - (1 + 0.05)-n]
$7938 x 0.05/$1429 = 1 - (1.05)-n
0.27774667599 = 1 - (1.05)-n
(1.05)-n = 1 - 0.27774667599
(1.05)-n = 0.72225332401
Taking 'Log' both sides,
Log(1.05)-n = Log(0.72225332401)
-n.Log(1.05) = Log(0.72225332401)
-n(0.048790164169) = -0.32537933735
n = -0.32537933735/-0.048790164169
n = 7
The answer is 7 years.