You received a $5,000 loan at the end of each of your four years of college.Aunt Rose agreed to pay off your loans at the end of your fourth year of school.How much will she have to pay? Assume a 4% interest rate compounded annually on student loans.
A)$20,000.
B)$21,235.
C)$39,930.
D)$50,000.
E)none of thesE.

Question

Quizplus · Accepted Answer

Using the compound interest formula, with P = 5000, r = 0.04, n = 1 (once per year), and t = 4 years, we can find the total amount owed at the end of four years:

A = P(1 + r/n)^(n*t)
A = 5000(1 + 0.04/1)^(1*4)
A = 5000(1.04)^4
A = 5821.79

Therefore, the total amount owed is $5,821.79 per year for four years, and since Aunt Rose agreed to pay off all the loans at the end of the fourth year, she will have to pay:

$5,821.79 x 4 = $23,287.16

So, the closest option to the answer is B) $21,235. This could be because they rounded down the interest rate to 4% instead of using the exact value, or they did not compound the interest annually.

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