Problem:

Caroline borrowed $8000 through the federal government's Stafford Loan program while she was studying accounting. The APR on her loan is 4.66%, and the loan must be paid back in full in 10 years. Caroline just got a job in Chicago and is about to start making monthly payments on her loan.

Required:

Question 1: What is Caroline's monthly payment assuming a 10-year repayment period? Round nearest cent. Payments are made at the end of the month.

Question 2: How much of Caroline's FIRST monthly payment in part a. above is interest and how much is reduction in principal?

Question 3: There are no pre-payment penalties on Safford loans, and so Caroline decides that she wants to send $200 each month instead of the amount you calculated in part a. above. In this case(sending in $200 instead of the amount in a. each month), how much of her FIRST payment is interest and how much is reduction principal?

Question 4: Suppose that 2 years have passed and that Caroline notices that interest rates on savings accounts have risen to 6.5% from less than 1% when she began repaying the loan. Further, she now has resources to pay off the loan in full. From a purely financial perspective, would you advise her to pay off the loan immediately? Why or why not?

Question 5: Assume the same situationas in part d. above except instead of assuming interest rates have risen, assume they have remained at less than 1% as they are now. Caroline can still pay off the loan immediately. Would you advise her to do so? Why or why not?

Note: Please show the work not just the answer.