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1 March, 06:45

Suppose someone takes out a home improvement loan for $30000. The annual interest on the loan is 6% and is compounded monthly. The monthly payment is $600. Let a denote the amount owed at the end of the nth month. The payments start in the first month and are due the last day of every month - this means in a given month interest is added first, and then the payment is applied to the resulting loan Balance. (a) Give a recursive definition for a,. including the recurrence relation and the base case. (You can readily check your thinking by setting up a spreadsheet to track the loan balance.) (b) Suppose that the borrower would like a lower monthly payment. How large does the monthly payment need to be to ensure that the amount owed decreases every month?

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  1. 1 March, 06:51
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    (a) f (n) = f (n-1) * 1.005 - 600

    (b) 150 USD

    Step-by-step explanation:

    Since the annual interest is 6% and interest is compounded everymonth and added at the beginning of the month. The the monthly interest is 6 / 12 = 0.5%

    (a) From there we can give a recursive definition for the dept owned at nth month

    f (n) = f (n-1) + f (n-1) * 0.005 - 600 = f (n-1) * 1.005 - 600

    where f (0) = 30000

    (b) For the amount owed to decrease everymonth, the monthly payment must be larger than the interest added at every month

    that is payment > f (n-1) * 0.005

    payment > 30000 * 0.005

    payment > 150 USD

    So the monthly payment needs to be at least 150 USD for the dept to decrease.
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