Question
Consider a university student deciding between a private bank student loan, and a government subsidized student loan. In subsidized loans, students borrow money viaagovernmentprogram where
Consider a university student deciding between a private bank student loan, and a government subsidized student loan. In subsidized loans, students borrow money viaagovernmentprogram where interest rates are lower (the subsidy can be considered as the difference between the costs of the two loan types).Complete parts a) and b) by hand(i.e., without using excel), then verify your answer with excel.All other questions may be completed using excel or any other tool you choose.
a)Assume that the annual unsubsidized rate is 8% and the annual subsidizedrate is 3%, and that you start paying loans off as soon as you receive the money. If you borrow $20,000 in year 0 of college and sign a contract to repay 120 equalpayments of the loan in 10 years, how much would your monthly payments be for each type ofloan?
b)For both loans, how much total interest do you pay? Compare the total interest paid with the total overall amount paid for both loans.
c)If your personal discount rate/MARR is 12%, how much do you value the government loan subsidyin time 0? Ignore any tax benefits.
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