Question

Willie Wilson plans to borrow $34,347 at the beginning of each of his 4 years of college. He will repay the loan in 15 equal annual installments at the end of each year starting one year after he graduates. If the interest rate is 6.27%, how large will the installments be? Interest will accrue on Willie's loan while he is in college.

Answer 1

HI

Here future value of fees borrowed= 34347*((1+6.27%)^4 +(1+6.27%)^3+ (1+6.27%)^2 +(1+6.27%))

=34347*(1.275 + 1.200 + 1.129 + 1.0627)

=34347*4.67

=$160,316.71

This future value will be Present value of future installments

Hence Present Value P = $160,316.71

time t = 15 years

rate r = 6.27%

annual installments C=?

P =(C/r)*(1-(1+r)^-t)

160316.71 = (C/0.0627)*(1-1.0627^-15)

C*0.598 = 160316.71*0.0627

C= $16,799.09

Hence annual installments is $16,799.09

Thanks