Questions: Suppose you have a student loan of 25,000 with an APR of 12% for 20 years. Complete parts (a) through (c) below. c. Compare the total amount you'll pay over the loan term if you pay the loan off in 10 years versus 20 years. Total payments for the 20-year loan = . Total payments for the 10-year loan =

Suppose you have a student loan of 25,000 with an APR of 12% for 20 years. Complete parts (a) through (c) below. c. Compare the total amount you'll pay over the loan term if you pay the loan off in 10 years versus 20 years. Total payments for the 20-year loan = . Total payments for the 10-year loan =
Transcript text: Suppose you have a student loan of $25,000 with an APR of 12% for 20 years. Complete parts (a) through (c) below. c. Compare the total amount you'll pay over the loan term if you pay the loan off in 10 years versus 20 years. Total payments for the 20-year loan = $ \square . Total payments for the 10-year loan = $ \square
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Solution

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Solution Steps

Step 1: Calculate Monthly Interest Rate

The monthly interest rate is calculated by dividing the APR by 12 and converting it to a decimal: 0.01.

Step 2: Calculate Number of Payments

The total number of payments over the loan term is: 240.

Step 3: Calculate Monthly Payments

Using the formula $M = P \times \frac{r \times (1 + r)^N}{(1 + r)^N - 1}$, the monthly payment is calculated to be: $275.27.

Step 4: Calculate Total Payments Over the Loan Term

The total payment over the loan term is: $66065.17.

Adjustments for Changed Loan Term

With the adjusted loan term of 10 years, the new total number of payments is: 120. The adjusted monthly payment is: $358.68. The adjusted total payment over the loan term is: $43041.28.

Final Answer:

After adjusting the loan term, the monthly payment is $358.68 with a total payment of $43041.28.

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