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A loan is taken and interest is charged at the end of each year, based on the principal outstanding, at a floating rate r%. This
A loan is taken and interest is charged at the end of each year, based on the principal outstanding, at a floating rate r%. This rate is assumed to follow the distribution: r Pr 3% 0.2 3.5% 0.2 4% 0.2 4.5% 0.2 5% 0.2 The principal outstanding at the start of 2021 is 1000, and the borrower is paying 200 at the end of each year, to cover both his interest charge and to reduce his principal balance. If the interest rate for 2021 is simulated by the random number 0.6543, and the interest rate for 2022 is simulated by the random number 0.3771, how much principal will be outstanding at the start of 2023? a. $652.40 b. $669.40 c. $673.60 O d. $684.00 e. $665.20
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