Question

#14. A graduating college student owes 40 thousand dollars for a student loan. The loan charges an APR of 6.4%. What is the monthly payment required to pay off this loan in 10 years? Use two decimal place accuracy.

Answer 1

You need to use a Financial calculator to solve this problem. You can download it.

N = 10 * 12 = 120 (The Loan is for 10 years, as the payments are monthly, so 120 payments)

PV = -40,000 (The present value of the loan is $870)

FV = 0 (The loan will be paid in full after 10 years, so zero Future value)

I/Y = 6.4%/ 12 = 0.5333 (The yearly rate is 6.4%, so monthly will be divided by 12)

CPT + PMT = 452.1512

So the monthly payment will be $452.1512 for the loan to be paid in full.

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