Question

You receive a 10-year unsubsidized student loan of $31,000 at an annual interest rate of 5.6%. What are your monthly loan payments for this loan after you graduate in 4 years? (Round your answer to the nearest cent.)

Answer 1

Given about a  10-year unsubsidized student loan of $31,000 at an annual interest rate of 5.6%

Since this student loan is unsubsidized loan, interest will accrue for the period of 4 year when payment are not made,

So, value of the loan after 4 years using compounding formula is

Value at year 4 = loan amount*(1 + r/n)^(n*t) = 31000*(1 + 0.056/12)^(12*4) =$38763.00

Now payments are made at the end of each months. It is calculated using PV formula of annuity,

PMT = PV*(r/n)/(1 - (1 + r/n)^(-n*t)) = 38763*(0.056/12)/(1 - (1 + 0.056/12)^(-12*10)) = $422.60

So, monthly payment of loan = $422.60