AnswersSEPHS - BUS 240 - Personal Finance SummerStudent LoansQuestion 20
20
QuizMultiple Choice

Student Loans

Question 20 • SEPHS - BUS 240 - Personal Finance (Summer)

Henry wants to avoid interest capitalization on his $7,800 unsubsidized Stafford loan. Henry will graduate in four years, and the loan has a duration of ten years. The loan has an interest rate of 5.6%, compounded monthly. How much must Henry pay every month to avoid interest capitalization?

Answer
A
$14.56
B
$43.68
C
$36.40
D
$31.20

Explanation

To prevent interest from accumulating and being capitalized, Henry must pay the monthly interest as it accrues. The monthly interest is $7,800 × 0.056 ÷ 12 = $36.40. Therefore, he must pay $36.40 per month, choice C.

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