After four years in college, Josie owes $104000 in student loans. The interest rate on the federal loans is 2.2% and the rate on the private bank loans is 4.8%. The total interest she owes for one year was $3,120.00.What is the amount of each loan?

After four years in college, Josie owes $104000 in student loans. The interest rate on the federal loans is 2.2% and the rate on the private bank loans is 4.8%. The total interest she owes for one year was $3,120.00.What is the amount of each loan?

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter4: Time Value Of Money

Section: Chapter Questions

Problem 25PROB

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Concept explainers

Cost of Credit

The cost of credit is an extra amount that the borrower has to pay besides the loan amount. These credit charges may vary from loan to loan. The cost of credit includes interest charges, maintenance charges, and arrangement charges. Some of the costs are mandatorily collected by the lender based on the loan amount and tenure of the loan. The cost of credit is also called finance charges of the credit.

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Expert Solution

Step 1

Let the amount in federal loans be "$X" , therefore amount in private bank loans would be "$104000-$X".

Interest on federal loan would be : 2.2%*$X

Interest on private bank loans would be : 4.8%*($104000 - $X).

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