You borrowed $70,000 in student loans. You plan to make monthly payments to repay the debt....
You borrowed $70,000 in student loans. You plan to make monthly payments to repay the debt. The interest rate is fixed at 3.3% APR (with monthly compounding). a) If the loans are for 10 years, find the monthly payment. b) Suppose that you decide to pay $300 more per month instead of the required monthly payment. How long will it take to pay off the loan?
Homework Answers
The monthly payments are the annuity amount on the loan . The loan amount is the present value of annuity.
Present value of aanuity = monthly payment * [ 1 - ( 1 + periodic int rate ) ^- no of periods ] / periodic int rate
70000 = MP * [ 1 - ( 1 + 0.033/12) ^-10*12 ] / 0.033/12
70000 = MP * 102.0911
MP= 70000 /102.0911 = 685.66
Monthly payment = 685.66
b) revised monthly payment = 685.66 + 300 = 985.66
70000 = 985.66 [ 1 - 1.033/12^- N ] / 0.033/12
Let us use Financial Calculato
PV= +- 70000
PMT = 985.66
I/Y = 0.275
N = ?
No of months = 79.12
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