Annual compounding related problem


Question 1: John is planning to use student loans to pay for graduate school tuition starting next year. His tuition will be $25,000 a year for three years. The loan program has an 12% annual rate of interest.

A. If John borrows to pay all of his tuition, how much will he owe at the end of three years, assuming annual compounding?

B. The student loan program will allow John to defer payment on the loan for up to five years after graduation. Interest, however, will continue to accumulate (compounded annually). If John exercises this option for the full five years, how much will he owe by the time he starts paying back the loan?

Question 2: You place $25,000 in a savings account paying monthly compound interest of 6% for three years and then move the balance to another account that pays 9% compounded monthly. How much will you have after 3 more years have passed?

Question 3: What rate of return will you earn if you pay $900 now for three consecutive annual (annuity) payments of $50 and an additional $1,000 at the end of the three years?

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Finance Basics: Annual compounding related problem
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