The average college graduate owes $22,500 in loans incurred over his/her college career. Now that it...

Question

The average college graduate owes $22,500 in loans incurred over his/her college career. Now that it is so difficult to land a job after graduation, an option for the graduate seeking relief is to stretch the loan over 20 years (with the bank’s approval, of course) instead of repaying the loan over the normal 10 years. Doubling the repayment period of the loan slices 29% off the monthly payments. However, this action also increases the total amount of interest repaid over the life of the loan by 121%! What is the monthly interest rate being charged in this scenario?

David · Accepted Answer

Answer
The monthly interest rate in a given situation, shall be derived by hit and trial method,
Let us assume, the interest rate be 0.75% per month,
Then,
The monthly payment of the 10 year loan by capital recovery factor of equal payment series, will 
be: 
A= $22,500 (A/P, 0.75%, 120) 
= 22,500 (0.0127) 
=$285.75
And,

The average college graduate owes $22,500 in loans incurred over his/her college career. Now that it is so difficult to land a job after graduation, an option for the graduate seeking relief is to...

Solution

Answer To This Question Is Available To Download

Related Questions & Answers

Submit New Assignment