Business, 25.09.2020 02:01, arunamvr

A student looking at the timeline for a student loan on page 60 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 , so the student will be paying back per year. Therefore, because the principal of the loan is , the interest rate must be . The above student statement is: A. incorrect because part of each payment is to principal and to interest. Therefore, only a portion of the payment goes to interest, so the full amount should not be included when computing the rate of interest paid. B. incorrect because the stated rate on the loan is 9% which means that even though the loan is made with monthly payments, the borrower is still effectively only charged 9% a year. C. correct because even though the stated interest rate is 9%, payments are made monthly which means it is compounded more times so the effective rate should work out to 15.24% D. correct because as the student states, there is a payment of per year that works out to 15.24%.

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A student looking at the timeline for a student loan on page 60 of the text makes the following obse...