Question

SHOW ALL WORK

William recently graduated from NFA University. While at NFA, William took out a $50,000 student loan. His loan requires him to make monthly payments for a 10-year period.

(a) If the simple annual interest is 4.2 percent, what are William’s monthly payments?

(b) To the nearest dollar, how much will William owe on his student loan after he makes payments for three years?

Answer 1

a.
In case of simple interest loan the amount of interest is not subject to compounding and thus the interest amount can be known at start
Monthly payment would consist of equal amount of interest and principal payable on loan
Total amount payable on loan	50000+(50000*4.2%*10)
Total amount payable on loan	50000+21000
Total amount payable on loan	$71,000
Monthly payment	71000/(10*12)
Monthly payment	$591.67
Thus, William's monthly payment would be $591.67
b.
Amount owed by william after 3 years	592*(7*12)
Amount owed by william after 3 years	$49,700
Thus, william would owe $49,700 after making payment for 3 years