Sandy Kupchack just graduated from State University with a bachelor’s degree in

Question

Sandy Kupchack just graduated from State University with a bachelor’s degree in history. During her four years at the university, Sandy accumulated $7,250 in student loans. She asks for your help in determining the amount of the quarterly loan payment. She tells you that the loan must be paid back in five years and that the annual interest rate is 8%. Payments begin in three months. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Determine Sandy's quarterly loan payment.

Sandy Kupchack just graduated from State University with a bachelor’s degree in history. During her four years at the university, Sandy accumulated $7,250 in student loans. She asks for your help in determining the amount of the quarterly loan payment. She tells you that the loan must be paid back in five years and that the annual interest rate is 8%. Payments begin in three months. (FV of $1, PV of $1, FVA of $1, PVA of $1, FVAD of $1 and PVAD of $1) (Use appropriate factor(s) from the tables provided.)

Explanation / Answer

Solution:

Loan amount = $7,250

Quarterly rate of interest (i) = 8%/4 = 2%

Nos of quarterly payments (n) = 5*4 = 20 periods

Quarterly payments = $7,250 / Cumulative PV Factor at 2% for 20 periods

= $7,250 / 16.35143 = $443,.38

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