Question
you have an outstanding student loan with required payments of $550 per month for the next four years. The interest rate on the loan is
you have an outstanding student loan with required payments of
$550
per month for the next four years. The interest rate on the loan is
10%
APR. You are considering making an extra payment of
$100
today? (that is, you will pay an extra
$100
that you are not required to? pay).
a. If you are required to continue to make payments of
$550
per month until the loan is paid? off, what is the amount of your final? payment???
b. What effective rate of return? (expressed as an APR with monthly? compounding) have you earned on the
$100??
c. Now that you realize your best investment is to prepay your student? loan, you decide to prepay as much as you can each month. Looking at your? budget, you can afford to pay an extra
$250
per month in addition to your required monthly payments of
$550?,
or
$800
in total each month. How long will it take you to pay off the? loan?
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