You have borrowed 40000 to pay for your college education af

You have borrowed $40000 to pay for your college education after your senior year in high school. Your friend does exactly the same, except your loan is at 690, your friends at 590. Your both plan to repay at the rate of $5200 per year. How much time respecting for each of you to pay off your loans?

Solution

Use the EMI formula that finds the monthly payments

PMT = Pr(1+r)ⁿ/(1+r)ⁿ -1 where r = interest rate in months, n = no of periods, P = Principal amount

You: PMT = $5200/yr = $433.33, r = 6/12 = .5%. n =?, P = $40,000

Friend: PMT = $5200, r = 8/12 = .67%. n =?, P = $40,000

Excel\'s PMT function gives the PMT. With help of goal seek, we can find the periods.

You n = 124.118 months = 10 years n 4 months

Friend n = 144.3 or ~ 12 Years.