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What is the loan balance six months after graduation

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Reference no: EM132729046

Consider Gavin, a new freshman who has just received a student loan and started college. He plans to obtain the maximum loan from at the beginning of each year. Although Gavin does not have to make any payments while he is in school, the 6.8 percent interest owed (compounded monthly) accrues and is added to the balance of the loan. After graduation, Gavin gets a six-month grace period. This means that monthly payments are still not required, but interest is still accruing. After the grace period, the standard repayment plan is to amortize the debt using monthly payments for 10 years.

Loan Limits:

Freshman $6,000
Sophomore $6,000
Junior $7,000
Senior $7,000

Question a. Construct cash flows of the loan.

Question b. What will be the loan balance when Gavin graduates after his fourth year of school?

Question c. What is the loan balance six months after graduation?

Question d. Using the standard repayment plan and a 6.8 percent APR interest rate, compute the monthly payments Gavin owes after the grace period.

 

Reference no: EM132729046

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