You received a $5,000 loan at the end of each of your four years of college. Your grandparents agreed to pay off your loans at the end of your fourth year of school. Assume a 4% annual compound interest rate on student loans. Which of the following answers is the closest to the amount they will have to deposit when you start school so that they will have enough money to pay off your loans after four years? Their interest rate is 6% compounded annually.
A) $20,000.
B) $21,235.
C) $16,813.
D) $15,000.
E) None of the answers is correct.

Question

Quizplus · Accepted Answer

To find the amount needed, calculate the future value of each loan at 4% interest and then find the present value of the total amount needed using a 6% interest rate. The closest amount is $16,813.

You Received a $5,000 Loan at the End of Each