Mary, a college student, needs to borrow $8,000 today for her tuition. She agrees to pay back the loan in a lump-sum payment upon graduating, 4 years from today. The lender agrees to lending at a fixed 3.85% interest rate during the loan period. What is the total cost of Mary's student loan?

$ 9,304.99

Explanation:

The applicable formula is

A = P x (1 + r)^n

where A is the amount after 4 years

P is principal amount $8000

r is interest rate = 3.85% or 0.0385

n = number of periods: 4

A = $8000 x ( 1 + 0.0385) ^4

A = $8000 x (1.0385)^4

A = $8000 x 1.163123

A =$9,304.99

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