Olivia has taken out a $13,100 unsubsidized Stafford loan to pay for her college education. She plans to graduate in four years. The loan has a duration of ten years and an interest rate of 7.6%, compounded monthly. By the time Olivia graduates, how much greater will the amount of interest capitalized be than the minimum amount that Olivia could pay to prevent interest capitalization

First, we add the options:

A. $354.22

B. $995.60

C. $477.27

D. $654.45

The correct option is D. $654.45

Explanation:

We use the formula:

A = P(1 + r/n)^nt

Where:

A = final amount

P = initial principal ($13,100)

r = interest rate (7.6% or 0.076)

n = number of times interest applied per time period

t = number of time period elapsed.

13100(1+0.076/12)^(12*4) - 13100 = 4636.85 

13100(0.076/12) x 4 x 12 = 3982.40 

Answer = 4636.85 - 3982.40 = 654.45 

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