Question

Consider a student loan of $17,500 at a fixed APR of 6% for 25 years,a. Calculate the monthly paymentb. Determine the total amount paid over the term of the loanc. Of the total amount paid, what percentage is paid toward the principal and what percentage is paid for interest.a. The monthly payment is $?

Answer 1

We know that

• The loan is $17,500.

,

• The APR is 6%.

,

• The period of time is 25 years.

Use the following formula.

$A=P\frac{r(1+r)^n_{}}{(1+r)^n-1}$

Where P = 17,500, r = 0.005, n = 300.

$\begin{gathered} A=17,500\cdot\frac{0.005(1+0.005)^{300}}{(1+0.005)^{300}-1} \\ A=112.75 \end{gathered}$

(a) Therefore, the monthly payment is $112.75.

The total amount paid would be obtained by multiplying the monthly payment by the total number of months.

$112.75\times300=33,825$

(b) Therefore, the total amount paid will be $33,825.

Divide the total amount paid by the principal.

$\frac{33,825}{17,500}=1.93\to193$

(c) The student will pay 193% of the principal, of which 93% represents interest.