Concept explainers
Problems 39 and 40 are complex financial problems that require several skills, perhaps some from previous sections.
During four years of college, Nolan MacGregor’s student loans are $4000, $3500, $4400, and $5000 for freshman year through senior year, respectively. Each loan amount gathers interest of 1% compounded quarterly while Nolan is in school and 3% compounded quarterly during a 6-month grace period after graduation.
(a) What is the loan balance after the grace period? Assume that the freshman year student loan costs Nolan 1% interest for 3/4 year during the first year, then for 3 full years until graduation. Make similar assumptions for the loans for the other years.
(b) After the grace period, the loan is amortized over the next 10 years at 3% compounded quarterly. Find the quarterly payment.
(c) If Nolan decides to pay an additional $90 per payment, how many payments will amortize the debt? What amount should be added to the last payment to pay the loan in full?
(d) How much will Nolan save by paying the extra $90 with each payment?
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Chapter 6 Solutions
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