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Gilbert is graduating from college in twelve months, but he will need a loan in the amount of $5,125 for his last two semesters. He may either receive an unsubsidized Stafford Loan with an interest rate of 6.8%, compounded monthly, or his parents may get a PLUS Loan with an interest rate of 7.8%, compounded monthly. The Stafford Loan has a grace period of six months from the time of graduation. Which loan will have a higher balance at the time of repayment and by how much?

a. The Stafford Loan has a higher balance by $134.35.

b. The Stafford Loan has a higher balance by $274.36.

c. The PLUS Loan has a higher balance by $54.79.

d. The PLUS Loan has a higher balance by $85.22.

Respuesta :

nobillionaireNobley
At the time of repayment, the Stafford loan will have a balance of 5,125(1 + 0.068/12)^18 = 5,125(1.107) = $5,673.71

At the time of repayment, the PLUS loan will have a balance of 5,125(1 + 0.078/12)^12 = 5,125(1.081) = $5,539.36

Difference = $5,673.71 - $5,539.36 = $134.35

Therefore, The Stafford Loan has a higher balance by $134.35


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