Concept explainers
Loans Suppose you borrow P dollars from a bank at a monthly interest rate of r and you make monthly payments of M dollars/month to pay off the loan (for example, if your borrow $30,000 at a rate of 1.5% per month, then P = 30, 000 and r = 0.015). Each month, the bank first adds interest to the loan balance and then subtracts your monthly payment to determine the new balance on your loan. So if A0 is your original loan balance and An equals your loan balance after n payments, then your balance after n payments is given by the recursive formula An = An−1(l + r) − M, A0 = P.
94. Car loan Suppose you borrow $20,000 for a new car at a monthly interest rate of 0.75%. If you make payments of $600/month, after how many months will the loan balance be zero?
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