A certified financial planner notes that with an unsubsidized student loan the b

Question

A certified financial planner notes that with an unsubsidized student loan the borrower has the choice of whether to make interest payments on the loan while still in college. She notes that making the interest payments rather than postponing them until after graduation is “always to your financial benefit ... because otherwise [the interest payments] will capitalize ....”

Which of the following statements best reflects the planners position?

A.

Deferring interest payments increases the principal balance, effectively

open double quote“capitalizing” the interest.

B.

Deferring interest payments increases capital losses.

C.

Paying the interest now avoids having to pay it later.

D.

Deferring interest payments increases capital gains.

Explanation / Answer

Defering the interest payments increases the principal balace, effectively opens double quote capitlizing the interest.

The answer is "A". the higher the interest rate, the more it will be added to the capital increasing the payments.

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