A student looking at the timeline for a student loan on page 65 of the text makes
Question:
A student looking at the timeline for a student loan on page 65 of the text makes the following observation:
The text states that the interest rate on the loan is 9%, but this calculation is obviously wrong. Each monthly payment
is $127, so the student will be paying back $127 × 12 = $1,524 per year. Therefore, because the principal of the loan is $10,000, the interest rate must be $1,524/$10,000 = 0.1524, or 15.24%.
Briefly explain whether you agree with the student’s reasoning.
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Related Book For
Money, Banking, and the Financial System
ISBN: 978-0134524061
3rd edition
Authors: R. Glenn Hubbard, Anthony Patrick O'Brien
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