Revision as of 22:03, 18 November 2023 by Admin (Created page with "'''Solution: A''' The outstanding balance is the present value of future payments. With only one future payment, that payment must be 559.12(1.08) = 603.85. The amount borrowed is <math>603.85 a_{\overline{4}|0.08}=2000.</math>The first payment has 2000(0.08) = 160 in interest, thus the principal repaid is 603.85 – 160 = 443.85. Alternatively, observe that the principal repaid in the final payment is the outstanding loan balance at the previous payment, or 559.12. P...")
Exercise
ABy Admin
Nov 18'23
Answer
Solution: A
The outstanding balance is the present value of future payments. With only one future payment, that payment must be 559.12(1.08) = 603.85. The amount borrowed is [math]603.85 a_{\overline{4}|0.08}=2000.[/math]The first payment has 2000(0.08) = 160 in interest, thus the principal repaid is 603.85 – 160 = 443.85.
Alternatively, observe that the principal repaid in the final payment is the outstanding loan balance at the previous payment, or 559.12. Principal repayments form a geometrically decreasing sequence, so the principal repaid in the first payment is 559.12 /1.083 = 443.85.
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