Question

Helena has taken out a $9,300 unsubsidized Stafford loan to pay for her college education. She plans to graduate in four years. The loan has a duration of ten years and an interest rate of 6.4%, compounded monthly. By the time Helena graduates, how much greater will the amount of interest capitalized be than the minimum amount that she could pay to prevent interest capitalization? Round all dollar values to the nearest cent.
a.
$238.46
b.
$496.00
c.
$595.20
d.
$324.33


Please select the best answer from the choices provided

A
B
C
D

Answer 1

Amount capitalized if she pays nothing while in school:
9300[(1 + 0.064/12)^{48} - 1]
= 9300[(1.0053333333)^{48} - 1] ≈ $2,705.13

Minimum total she could pay to prevent capitalization (pay monthly interest on the principal only):
9300 * 0.064 * 4 = $2,380.80

Difference = 2705.13 − 2380.80 = $324.33

Answer: D