Ben has been accepted into a 2-year culinary arts program at the Greenfield Career Institute. He has been approved for a $5,000 unsubsidized 10-year federal loan at 4.29%. He knows he has the option of beginning repayment of the loan in 2.5 years. He also knows that during this nonpayment period, interest will accrue at 4.29%.
a. How much interest will Ben accrue during the 2.5-year nonpayment period?
b. If Ben decides to make no payments during the 2.5 years, the interest will be capitalized at the end of that period. What will the new principal be when he begins making loan payments, and how much will he pay in interest over the life of the loan?
c. Suppose Ben only paid the interest during his 2 years in school and the 6-month grace period. What will he pay in interest over the term of his loan?
d. Ben made his last monthly interest-only payment on September 25. His next payment is due on October 25. What will be the amount of that interest-only payment?