b) What is the cost of each instalment per yearc) Given two rates of return guess values as 2.5% and 3.5%, estimate by interpolation theinternal rate of return of the whole transaction to determine if it is a worthwhileinvestment for Amarachi State of Texas sponsors a student loan program for native born Texans who plan to attend any ofthe University in the State of Texas. The loan program does not charge any interest until aftergraduation and then the interest rate is 6%. Amarachi, a native born Texan, plans to attendPrairie View A & M University under this loan program and as such borrows $10,500 beginningof freshman year (since tuition must be paid at the start of each year) and subsequently $9500 thenext three years. Amarachi plans to start paying back the loan, three years after graduation, in sixequal annual instalments based on 6% interest rate per year.

b) What is the cost of each instalment per year c) Given two rates of return guess values as 2.5% and 3.5%, estimate by interpolation the internal rate of return of the whole transaction to determine if it is a worthwhile investment for Amarachi

b) What is the cost of each instalment per year c) Given two rates of return guess values as 2.5% and 3.5%, estimate by interpolation the internal rate of return of the whole transaction to determine if it is a worthwhile investment for Amarachi

Microeconomic Theory

12th Edition

ISBN:9781337517942

Author:NICHOLSON

Publisher:NICHOLSON

Chapter17: Capital And Time

Section: Chapter Questions

Problem 17.6P

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Question

b) What is the cost of each instalment per year
c) Given two rates of return guess values as 2.5% and 3.5%, estimate by interpolation the
internal rate of return of the whole transaction to determine if it is a worthwhile
investment for Amarachi

State of Texas sponsors a student loan program for native born Texans who plan to attend any of
the University in the State of Texas. The loan program does not charge any interest until after
graduation and then the interest rate is 6%. Amarachi, a native born Texan, plans to attend
Prairie View A & M University under this loan program and as such borrows $10,500 beginning
of freshman year (since tuition must be paid at the start of each year) and subsequently $9500 the
next three years. Amarachi plans to start paying back the loan, three years after graduation, in six
equal annual instalments based on 6% interest rate per year.

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