A friend of yours is asking for advice on whether he should pay back his student loan. The loan is a ten-year, amortizing loan with a principal amount of $200,000, and annual payments. An amortizing loan (like mortgages) is one where your annual payment is the same every year of the loan (so unlike a bond, there is no large principal payment at the end). The payment is intended to cover that year's interest, and the remaining portion of the payment, after interest has been paid, goes to paying back the principal. This particular student loan has an annual rate of 5%. Given the terms of the loan, your friend owes an annual payment of $25,901, to be made at the end of years 1, 2, ..., 10. The spreadsheet given out with this homework shows how this calculation is done, though the details are not important for the rest of this question. (All interest rate calculations should use annual compounding.)