Question

1. You estimate that you will owe $45,300 in student loans by the time you graduate. The interest rate is 4.25 percent. If you want to have this debt paid in full within 10 years, how much must you pay each month?

Now suppose you decide to defer your payments for 2 years. What will the balance of your loans be when you start to make payments?

At this point, how much will you need to pay each month to pay the debt in full over 10 years?

Suppose you want to make up for lost time and pay off your debts within 10 years from graduation, despite the deferral. What monthly payment is required to meet this goal?

Answer 1

Formula for loan amortization =
A= [i*P*(1+i)^n]/[(1+i)^n-1]
A = periodical installment=??
P=Loan amount =45300
i= interest rate per period =4.25% pa=0.3542% per month
n=total no of payments=10 years =120 Months
A=[0.3542%*45300*1.003542^120]/(1.003542^120-1)
A =$464
So Monthly payment required is $464.	Ans 1.
If Payment is deferred by 2 years , the amount
after 2 years with 4.25% interets will be =45300*1.0425^2
=$49,232.32
So The Loan Balance after 2 years will be $49,232.32	Ans 2.
If The loan is to be repaid in next 10 years :
A= [i*P*(1+i)^n]/[(1+i)^n-1]
A = periodical installment=??
P=Loan amount =49232.32
i= interest rate per period =4.25% pa=0.3542% per month
n=total no of payments=10 years =120 Months
A=[0.3542%*49232.32*1.003542^120]/(1.003542^120-1)
A =504.33
So The Monthly Installment will be $504.33	Ans 3.
If the paymnet needs to be made within 10 years
of graduation, then the repayment period will be 8 years.
A= [i*P*(1+i)^n]/[(1+i)^n-1]
A = periodical installment=??
P=Loan amount =49232.32
i= interest rate per period =4.25% pa=0.3542% per month
n=total no of payments=8 years =96 Months
A=[0.3542%*49232.32*1.003542^96]/(1.003542^96-1)
A=605.86
So Monthly Intsallment in this case would be $605.86	Ans 4.