Question

Jeffery Wei received a 6-year non-subsidized student loan of $32,000 at an annual interest rate of 5.5%. What are Jeffery's monthly loan payments for this loan after he graduates in 4 years? (Round your answer to the nearest cent.)

Answer 1

As it is a non-subsidized loan, interest will accrue during first 6 years when jeffery is in college.

So, we will calculate interest accrued using simple interest rate formula;

Simple interest = Principal * rate* time

SI = 32000*0.055*4

SI = 7040

Then we will add this amount to the borrowed loan amount

Total amount in 4 years = 32000 + 7040 = 39040

Using a financial calculator (in excel) we will solve for the monthly PMT;

PV = -39040

FV = 0

Monthly interest rate ; I = 5.5%/12 = 0.4583

N = 6*12 = 72 months

PMT = $637.83