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Unformatted text preview: $5,000,000, the loan will never get paid off because the interest due each compounding period will exceed the loan payment made. 29. The difference equation for this loan is: y n = 1.05y n-1 1500 The graph of these values is monotonic ( a is positive) and repelled (absolute value of a is greater than 1). Therefore, the maximum that can be borrowed must be less than b /1-a so that the loan is eventually paid off. b /1-a = 1500/(1 1.05) = -1500/-.05 = 30,000 She must borrow less than = $30,000. 30. Difference Equation y n = 1.01y n-1 120 y = 10,000 y = 10,000 y 1 = 1.01(10,000) 120 = $9,980 ($20 applied to principal, $100 applied to interest) y 2 = 1.01(9,980) 120 = $9,959.80 ($20.20 applied to principal, $99.80 applied to interest) *The difference in the loan balance from period to period shows how much of the $120 payment was applied to the principal for that period. The remainder ($120 payment amount applied to principal) is for the interest (which is 1% of the beginning balance for that period)....
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- Spring '08