Liam just graduated from his state university with $29 comma 50229,502 in student loan debt. He is curious what his monthly payments will be if he repays over the standard 1010 years at 55 percent. Liam also has an emergency fund that pays 33 percent. Should he use some of that money to repay his student loans early? Why?
Liam just graduated from his state university with $29 comma 50229,502 in student loan debt. He is curious what his monthly payments will be if he repays over the standard 1010 years at 55 percent. Liam also has an emergency fund that pays 33 percent. Should he use some of that money to repay his student loans early? Why?
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
Related questions
Question
Liam just graduated from his state university with
$29 comma 50229,502
in student loan debt. He is curious what his monthly payments will be if he repays over the standard
1010
years at
55
percent. Liam also has an emergency fund that pays
33
percent. Should he use some of that money to repay his student loans early? Why? Note: Round intermediate computations to at least five (5) decimal places.
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Part 1
Liam's monthly payment is
$338.41338.41.
(Round to the nearest cent.)Part 2
Should Liam use some of the money in his emergency fund to repay the loan early? Why? (Select the best answer below.)
Liam should not use some of the money in his emergency fund to repay his loan early because the
33%
is less than the interest on the loan, which is
55%.
He would give up more in interest earned by using some of the money than he would pay in interest if he repaid the loan over the full
1010
years.Liam can use some of the money in his emergency fund to repay his loan early because the
33%
is less than the interest on the loan, which is
55%.
He would give up less in interest earned by using some of the money than he would pay in interest if he repaid the loan early. If he does so, he should funnel any reduced payments back into his emergency fund to rebuilt it.Liam should not use some of the money in his emergency fund to repay his loan early. Although the
33%
is less than the interest on the loan, which is
55%,
repaying his student loan is not an emergency.Liam should use some of the money in his emergency fund to repay his loan early because the
55%
is less than the interest on the loan, which is
33%.
He would give up less in interest earned by using some of the money than he would pay in interest if he repaid the loan over the full
1010
years.Expert Solution
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