A+ » VCE » Further Maths U3 & 4 Master Notes » A2 Recursion and Financial Modelling » 4.1 Modelling Compound Interest Systems with Regular Withdrawals

4.1 Modelling Compound Interest Systems with Regular Withdrawals

Note: if you cannot remember the recurrence relation formula for a compound interest system, revise notes for 2.2 Analysis of Compound Interest.

Modelling using a Recurrence Relation

  • A compound interest system with regular withdrawals describes a system which has a positive interest rate, and withdrawals (negative) made at the end of each compounding period.
  • We can use the simple recursion formula to model this system:

A_{n+1}=d+(1+I) A_{n}

Where d<0 and I>0.

This content is for Master Notes FM members only. Unlock the content by signing up for a membership level - quick and easy!
Log InSign Up