lets say you have a student loan of $20,000. it generates interest every month, in which the rate is 1% applied monthly for 4 years . How will much you own when you graduate?

Question

Show the calculation you will do to find how much you’ll owe when you graduate.

Answer 1

Every month, the money owed is (1+.01) or 1.01 times the previous month. since 4 years is 48 months:

Money owed = 20,000*(1.01)⁴⁸

In terms of the interest formula FV = PV(1 + i/n)^nt where t is in years and n is the number of subdivisions of the year that you are using to compound. In this case n-12 and t = 4. If you'd been given the annual rate, you would divide by 12, but you were given the monthly rate which is i/n directly.