Question

Edgar has taken out a $6,250 unsubsidized Stafford loan to fund his four-year undergraduate degree. The loan has a duration of 10 years and an interest rate of 6.1%, compounded monthly. How much interest capitalization will have accrued by the time Edgar graduates? Round all dollar values to the nearest cent.
a.
$1,670.30
b.
$1,722.22
c.
$664.35
d.
$1,524.96


Please select the best answer from the choices provided.

A
B
C
D

Answer 1

Interest accrued = 6250[(1 + 0.061/12)^(12*4) − 1]
= 6250[(1 + 0.061/12)^48 − 1] ≈ 6250(1.27555556 − 1) ≈ $1,722.22.

Answer: B