a student with a $33,500 student loan is offered two payment plans to repay their debt.
plan 1: monthly payment of $361.91 over a period of 10 years, 2)8,) corresponds to a compound interest rate of 5.4% compounded monthly.
plan 2: monthly payment of $473.49 over a period of 7 years, which corresponds to a compound interest rate of 5.0% compounded monthly.
determine which plan offers the student a lower cost of credit. find the lower credit cost. round the answer to two decimal places as needed.
To find the lower cost of credit, we need to calculate the total amount paid for each payment plan and compare them.
In plan 1, the monthly payment is $361.91, and the repayment period is 10 years. So the total amount paid can be calculated as:
Total amount paid = Monthly payment * Number of payments
Total amount paid = $361.91 * (10 years * 12 months/year)
Total amount paid = $361.91 * 120
Total amount paid = $43,429.2
In plan 2, the monthly payment is $473.49, and the repayment period is 7 years. So the total amount paid can be calculated as:
Total amount paid = Monthly payment * Number of payments
Total amount paid = $473.49 * (7 years * 12 months/year)
Total amount paid = $473.49 * 84
Total amount paid = $39,795.16
Therefore, plan 2 offers the student a lower cost of credit. The lower credit cost is $39,795.16.