Max borrows $15,500 for her last 2 years of college, acquiring a federal student loan at 8% interest.
Find the amount of interest accrues if she acquires the loan in August, graduates 2 years later, and
Payments begin 3 months later.

Question

Quizplus · Accepted Answer

First, we need to calculate the total amount of interest that accrues on the loan.

The loan amount is $15,500 and the interest rate is 8%, which means the interest accrues at a rate of 0.08/12 = 0.00667 per month.

Max acquires the loan in August and graduates two years later, which means the loan accrues interest for 24 months.

Total interest = $15,500 x 0.00667 x 24 = $2,788.94

Next, we need to adjust for the fact that payments begin 3 months after graduation.

During those 3 months, interest continues to accrue.

Interest during the 3-month grace period = $15,500 x 0.00667 x 3 = $328.73

So the total amount of interest that accrues before payments begin is:

$2,788.94 + $328.73 = $3,117.67

Therefore, the best choice is B) $2,788.94, which is the total interest that accrues during the 2-year period. First, we need to calculate how much interest accrues during the 2 years Max is in school:
Interest = (Principal) x (Rate) x (Time)
Interest = ($15,500) x (0.08) x (2 years)
Interest = $2,480

Next, we need to calculate how much interest accrues during the 3-month grace period:
Interest = (Principal) x (Rate) x (Time)
Interest = ($15,500) x (0.08) x (0.25 years)
Interest = $310

Finally, we add the two amounts of interest together:
$2,480 + $310 = $2,790

Therefore, the best choice is B.

Max Borrows $15,500 for Her Last 2 Years of College