Note: if you cannot remember how to model reducing balance relations with regular repayments, revise notes for 3.1 Modelling Reducing Balance Systems with Regular Repayments.
Benefits of using Technology to Model Reducing Balance Systems
- Solving reducing balance systems using recursion can become a long and tedious process when the number of compounding periods becomes large. Using technology allows us to find values much quicker in these situations.
- When solving by hand, we generally round off at each compounding period. While this is accurate for some systems, in others this causes an error which is compounded through the following compounding periods, resulting in inaccurate results.