Question

Tamora has just graduated from college. When she entered college four years ago, she took out a $9,100 subsidized Stafford loan, which has a duration of ten years. The loan has an interest rate of 5.4%, compounded monthly. If Tamora makes monthly payments, how much interest will she have paid in total by the time the loan is paid off? Round all dollar values to the nearest cent.
a.
$2,697.20
b.
$1,574.00
c.
$5,534.00
d.
$3,888.08


Please select the best answer from the choices provided

A
B
C
D

Answer 1

Compute the monthly payment using A = P * r / (1 − (1 + r)^−n).

r = 0.054/12 = 0.0045, n = 10·12 = 120, P = 9,100.

A ≈ 9,100·0.0045 / (1 − (1.0045)^−120) ≈ $98.31 per month.

Total paid = 98.31·120 = $11,797.20.
Total interest = 11,797.20 − 9,100.00 = $2,697.20.

Answer: A