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Chapter 3 Mathematics of Finance - page 17 / 20

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Barnett/Ziegler/Byleen Finite Mathematics 12e

17

Solution (continued)

At the end of the first month, the interest due is $500(0.01) = $5.00.

The amortization payment is divided into two parts, payment of the interest due and reduction of the unpaid balance.

Monthly PaymentInterest DueUnpaid Balance Reduction

      $86.27          =         $5.00       +              $81.27

The unpaid balance for the next month is

Previous Unpaid BalUnpaid Bal ReductionNew Unpaid Bal

     $500.00            –     $81.27           =  $418.73

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