11
QuizMultiple Choice

Student Loans

Question 11 • SEPHS - BUS 240 - Personal Finance (Summer)

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.

Answer
A
$238.46
B
$496.00
C
$595.20
D
$324.33

Explanation

If Helena makes no payments, the interest accrued over 48 months is $9,300[(1 + 0.064/12)^48 − 1], or about $2,705.13. To prevent interest from being capitalized, she could pay the interest as it accrues; that minimum total is simple interest: $9,300 × 0.064 × 4 = $2,380.80. The difference is $2,705.13 − $2,380.80 = $324.33, so the answer is D, $324.33.

AI-written and checked against the verified answer.

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