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Sagot :
The amount needed in Tina's account in order for her to reach her goal round to the nearest cent is given by: Option B: $866,442.02 approximately.
What is the amount of a fixed period payment to be done to pay off the loan amount which is increasing compoundly?
Suppose we're given that:
- [tex]P_v[/tex]= Present value of the loan amount
- r = rate of interest (compound interest) per period of time
- n = number of period of time in which loan is to be paid off
- P = A fixed period payment needed to be done for paying off the loan in n number of periods.
Then, we get:
[tex]P = \dfrac{r\times P_v}{1 - (1 + r)^{-n}}[/tex]
Why do we need this loan paying formula?
It is because we can simulate this situation with above condition.
Suppose the balance in her account is loan that she has given to someone. Let it be x, so [tex]P_v[/tex] = x dollars
The loan is increasing compoundly per year(here period of time is year wise). r = 2.2% = 0.022
That loan taker will pay off(since she need money only for 35 years) the loan in 35 years by giving $35756 = P payments each year.
We need to find the value of that initial loan amount (which refers to the amount that she needs to keep in her account).
Putting values in the aforesaid formula, we get:
[tex]P = \dfrac{r\times P_v}{1 - (1 + r)^{-n}}\\\\\\35756 = \dfrac{0.022 \times x}{1 - (1+0.022)^{-35}}\\\\\\x = \dfrac{35756 \times (1 - (1+0.022)^{-35})}{0.022} \approx 866442.02 \: \rm dollars[/tex]
Thus, the amount needed in Tina's account in order for her to reach her goal round to the nearest cent is given by: Option B: $866,442.02 approximately.
Learn more about loan payment here:
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