Consider Kathryn, a new student who has just received a loan and started college. She plans to

obtain the maximum loan from at the beginning of each year. Although Kathryn does not have to

make any payments while she is in school, the 6.8 percent interest owed (compounded monthly)

accrues and is added to the balance of the loan. After graduation, Kathryn gets a six-month grace

period. This means that monthly payments are still not required, but interest is still accruing.

After the grace period, the standard repayment plan is to amortize the debt using monthly

payments for 10 years.

Loan Limits:

Freshman $6,000

Sophomore $6,000

Junior $7,000

Senior $7,000

Construct cash flows of the loan.

What will be the loan balance when Kathryn graduates after her fourth year of school?

What is the loan balance six months after graduation?

Using the standard repayment plan and a 6.8 percent APR interest rate, compute the monthly payments she owes after the grace period.