Question

Claudius took out an unsubsidized Stafford loan at the beginning of his six-year college career. The loan had a principal of $4,850, an interest rate of 6.5% compounded monthly, and a duration of ten years. If Claudius started paying off the loan when he graduated, what is his monthly payment? Round all dollar values to the nearest cent.
a.
$71.37
b.
$81.25
c.
$55.07
d.
$76.55

Answer 1

Monthly rate r = 0.065/12 = 0.005416666666666667, n = 10·12 = 120.

Monthly payment = (rP) / (1 - (1 + r)^(-n))
= (0.0054166667 · 4850) / (1 - (1.0054166667)^(-120))
≈ 26.27083333 / 0.476674...
≈ $55.07

Answer: c. $55.07