The recursive formula below is used to construct a loan schedule: L(t) = (1+i)L(t-1) - X(t) where
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Question:
The recursive formula below is used to construct a loan schedule:
L(t) = (1+i)L(t-1) - X(t)
where L(t) = Loan outstanding at end of period t X(t) = repayment at end of period t i = effective interest rate per unit of time t.
i. Explain in words what this formula is saying.
ii. Generalise the formula to include a fee of $8 per unit of time t paid in addition to the repayment X(t).
iii. Suppose the interest was calculated as continuously compounding with a force of interest d. Generalise the formula in Parti and define any additional terms to include this case.
Related Book For
Statistical Reasoning for Everyday Life
ISBN: 978-0321817624
4th edition
Authors: Jeff Bennett, Bill Briggs, Mario F. Triola
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