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.How much will they 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)$16,818.
D)$15,000.
E)none of thesE.

Question

Quizplus · Accepted Answer

To find the present value of the total loan amount needed to be paid off, we calculate the future value of each $5,000 loan at 4% interest and then discount it back to the present value using a 6% interest rate. The calculations show that the present value required is approximately $16,818.

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