James is planning to go to medical school and cover his tuition and living expenses by taking out student loans. The loan program has a stated $7$ percent annual rate of interest, but interest is compounded monthly. His total expenses will be $$50,000$ per year for $4$ years, and because most of this sum represents tuition that is due at the beginning of each year, assume beginning$-$of$-$year cash flows.  

 

a$.$ How much will James owe at the end of the $4$th year when he graduates?

 

 b$.$  If the loan program allows James to wait $4$ years beyond graduation before making payments $($he will be doing a residency at this time and will have minimal earnings$),$ and after this time he makes end$-$of$-$month payments for $120$ months in order to fully repay what he owes, how large will his monthly payment be$?$ Note that interest continues to accrue during the $4$ years while the loan is in deferment. $\mathrm{}$$$ 

Answer rating: 100% (QA)

To solve this problem we will use the formula for compound interest to calculate the total amount Ja... View the full answer