You borrow $10,000 to pay for your expected college costs over the next four years, including a master degree. Two years from now, you determine that you need an additional $4,000 so you take out a second loan to borrow this additional amount. Starting four years from the original loan (two years after the second loan), you begin to repay your combined debt by making annual payments of $2, 880. You will make these payments for 10 years.
a. Draw a cash flow diagram of this situation from your perspective.
b. If the interest rate is 12% compounded annually, how much do you still owe on this loan (after 10 years of $2, 880 annual payments)?