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The Stafford plan now offers student loans at 4% annual interest. After two years the interest rate will increase to 7% per year. If you borrow $5,500 now and $5,500 each year thereafter for a total of four installments of $5,500 each, how much will you owe at the end of year 4? Interest is computed at the end of each year. Click the icon to view the interest and annuity table for discrete compounding when i = 4% per year. Click the icon to view the interest and annuity table for discrete compounding when i = 7% per year. At the end of year 4 you will owe $. (Round to the nearest dollar.)

The Stafford plan now offers student loans at 4% annual interest. After two years the interest rate will increase to 7% per year. If you borrow $5,500 now and $5,500 each year thereafter for a total of four installments of $5,500 each, how much will you owe at the end of year 4? Interest is computed at the end of each year. Click the icon to view the interest and annuity table for discrete compounding when i = 4% per year. Click the icon to view the interest and annuity table for discrete compounding when i = 7% per year. At the end of year 4 you will owe $. (Round to the nearest dollar.)

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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The Stafford plan now offers student loans at 4% annual interest. After two years the interest rate will increase to 7% per year. If you borrow $5,500 now and $5,500 each year thereafter for a total of four installments of $5,500 each, how much will you owe at the end of year 4? Interest is computed at the end of each year. Click the icon to view the interest and annuity table for discrete compounding when i= 4% per year. Click the icon to view the interest and annuity table for discrete compounding when i = 7% per year. At the end of year 4 you will owe (Round to the nearest dollar.)
Transcribed Image Text:The Stafford plan now offers student loans at 4% annual interest. After two years the interest rate will increase to 7% per year. If you borrow $5,500 now and $5,500 each year thereafter for a total of four installments of $5,500 each, how much will you owe at the end of year 4? Interest is computed at the end of each year. Click the icon to view the interest and annuity table for discrete compounding when i= 4% per year. Click the icon to view the interest and annuity table for discrete compounding when i = 7% per year. At the end of year 4 you will owe (Round to the nearest dollar.)
Expert Solution
Step 1: Determine the cash flow diagram:

The cash flow diagram of the given problem can be represented as 

Economics homework question answer, step 1, image 1

The amount owed at the end of 4 years will be the future value of the above cash flow diagram.

The formula of future value: F equals P open parentheses 1 plus i close parentheses to the power of n


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