Let Bn = balance of a loan after n payments, In = the interest portion of the nth payment, and Qn = the portion of the nth payment applied to the principal. Equation (1) states that Bn = (1 + i)Bn-1 - R.
(a) Use the fact that In + Qn = R and In = iBn-1 to show that

(b) Use equation (1) and the results that

And

from part (a) to derive the formula Qn + 1 = (1 + i )Qn.
(c) State in your own words the formula obtained in part (b).
(d) Suppose that, for the 10th monthly payment on a loan at 1% interest per month, $100 was applied to the principal. How much of the 11th and 12th payments will be applied to the principal?

Transcribed Image Text:

B-1= R - Q. B,-1=