Deriving a differential equation for a loan/interest problem

If you are still stuck, try taking the derivative of your answer and see if it matches with the differential equation.In summary, the conversation discusses a problem where money is borrowed at a continuous interest rate. The borrower wants to pay back the money quickly at first, but reduce the payment rate over time. The solution involves using a differential equation to describe the amount owed and solving it through integration. The process may involve recalling the integral of ekt and checking the solution by taking its derivative.
  • #1
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Homework Statement


You borrow money from a friend at a continuous interest rate of r% per month. You want to pay your friend back as quickly as you can at the beginning, but reduce your payment rate over time. You decide to pay off at a continuously decreasing rate given by K₀e[itex]^{-at}[/itex], in dollars per month.

Write a differential equation that describes how much you owe and solve it.


Homework Equations


None


The Attempt at a Solution


Let S be the amount borrowed -

dS/dt = rS - K₀e[itex]^{-at}[/itex]

S' - rS = -K₀e[itex]^{-at}[/itex]

S'(I(x)) - rS(I(x)) = -K₀e[itex]^{-at}[/itex](I(x))

Se[itex]^{-rt}[/itex] = -K₀[itex]\int[/itex]e[itex]^{-t(a+r)}[/itex]

Se[itex]^{-rt}[/itex] = ...

This is where I get stuck, I have don't understand how to integrate -K₀[itex]\int[/itex]e[itex]^{-t(a+r)}[/itex], any hints?
 
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  • #2
if 'a' and 'r' are constants then you can simply recall that ∫ ekt = (1/k)ekt+ constant.
 

FAQ: Deriving a differential equation for a loan/interest problem

What is a differential equation in the context of a loan/interest problem?

A differential equation is a mathematical equation that describes the relationship between a function and its derivatives. In the context of a loan/interest problem, it is used to model the changing balance of a loan over time, taking into account the interest rate and any additional payments made.

How is a differential equation derived for a loan/interest problem?

To derive a differential equation for a loan/interest problem, we start with the basic formula for calculating interest: I = PRT (Interest = Principal x Rate x Time). We then use the derivative to find the rate of change of the loan balance, and incorporate this into the formula to create a differential equation.

What are the variables involved in a differential equation for a loan/interest problem?

The variables involved in a differential equation for a loan/interest problem are the loan balance (B), the interest rate (r), and time (t).

How is a differential equation for a loan/interest problem solved?

A differential equation for a loan/interest problem can be solved using various methods such as separation of variables, integrating factors, or using a table of integrals. The solution will give us the function for the loan balance over time.

How can a differential equation for a loan/interest problem be applied in real life?

A differential equation for a loan/interest problem can be used to predict the balance of a loan over time, taking into account the interest rate and any additional payments made. This can help individuals or businesses make informed decisions about their loans and manage their finances effectively.

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