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Thread: Borrowing Model

  1. #1
    Nov 2010

    Borrowing Model

    Need help with this question. I know the answer but I have difficulty understanding how to get it.
    "Suppose that you take out an unsubsidized Stafford loan on Sept 1 before your senior year for $5500 and plan to begin paying it back on Dec 1 after graduation (so you will have had the loan 15 months, including the six month grace period after leaving school). The interest rate is 6.8%. How much will you owe then, and how much of that will be in interet?"
    Answers are 5967.50, 467.50

    I'm pretty sure the formula is I=Prt, but again when I solve for 'I', I dont get 5967.50!
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  2. #2
    Dec 2007
    Ottawa, Canada
    Solving for I means solving for the Interest.
    I = 5500 * .068 * 1.25 = 467.50 (1.25 yrs = 15 months)
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