A student loan can be taken either at 8% for 15 years or 6% for 20 years. The student is not allowed to close the loan earlier. If the stident needs $25000 what is the total amount payable in both the cases.
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The students needs a student loan of $25000. Assume that the entire amount can be paid back at the end of the loan tenure.
If the first option of making an interest payment of 8% for 15 years is chosen, the total amount due after 15 years is `25000*(1 +0.08)^15` = 79304.22
One the other hand, if the student takes the loan at an interest rate of 6% for 20 years, the amount payable after 20 years is `25000*(1+0.06)^20 ` = 80178.38
The total amount payable by the student is $79304.22 if the loan is taken for 15 years at an interest rate of 8%; if it is taken for 20 years at an interest rate of 6%, the amount due is $ 80178.38
In each case, we can follow a formula:
F = P*(1+r)^t
F = final value
P = Present or principal value
t = time in years.
For this, we are given the principal value, $25,000. We are given each rate as well as each time. So, plugging in the numbers:
For 8% at 15 years
F = 25000*(1+0.08)^15 = $79,304.23
For 6% at 20 years
F = 25000*(1+0.06)^20 = $80,178.39
Good luck, Steve. I hope this helps.
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