5. A student looking at a student loan of a size of $10,000, an interest rate of 9%, and a monthly payment of $127 makes the following observation: The text states that the interest rate on the loan is 9%, but this calcula- tion is obviously wrong. Each monthly payment is $127, so the student will be paying back $127×12= $1,524 per year. Therefore, because the principal of the loan is $10,000, the interest rate must be $1,524 0.1524, or 15.24%. Briefly explain whether you agree with the student's reasoning. $10,000
5. A student looking at a student loan of a size of $10,000, an interest rate of 9%, and a monthly payment of $127 makes the following observation: The text states that the interest rate on the loan is 9%, but this calcula- tion is obviously wrong. Each monthly payment is $127, so the student will be paying back $127×12= $1,524 per year. Therefore, because the principal of the loan is $10,000, the interest rate must be $1,524 0.1524, or 15.24%. Briefly explain whether you agree with the student's reasoning. $10,000
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Transcribed Image Text:5.
A student looking at a student loan of a size of $10,000, an interest rate
of 9%, and a monthly payment of $127 makes the following observation:
The text states that the interest rate on the loan is 9%, but this calcula-
tion is obviously wrong. Each monthly payment is $127, so the student will
be paying back $127×12 = $1, 524 per year. Therefore, because the principal
of the loan is $10,000, the interest rate must be $1,524 = 0.1524, or 15.24%.
$10,000
Briefly explain whether you agree with the student's reasoning.
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