Question

# You are graduating from medical school today. You took out a \$75,000 student loan at the...

You are graduating from medical school today. You took out a \$75,000 student loan at the beginning of each school year for the past four years. Since they were student loans, you were not obligated to make any payments until now. You will begin making monthly payments in a month to pay back the loan in the next 20 years. The interest rate of the loan is 6%. How much is your monthly payment? To simplify the problem, assume that the interest is compounded annually during the medical school and compounded monthly after graduating.

 \$2,149.29 \$2,491.62 \$2,338.89 \$2,350.58 \$2,479.22

#### Homework Answers

Answer #1

First lets calculate the value of loan at the end of 4th year end of college :

Amount withdrawn at the beginning of year 1 would be outstanding for 4 years and at the end of 4 years it would be worth = 75,000 * (1+6%) ^4 = \$94,685.77

Similary the value of all the withdrawls are calculated at the end of 4 years which amount to \$347,781.97

PV of all the future payments monthly will be equal to the PV today.

i = 6% / 12 = 0.5%

n = 20 years * 12 months = 240 months

Putting values :

\$347,781.97 = C * [(1-(1+0.5%)^-240) / 0.5%]

C = \$2,491.62

OPTION B

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