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

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.

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