Final answer:
The outstanding balance using the prospective method is $12,491.20, while the outstanding balance using the retrospective method is $12,492.22.
Step-by-step explanation:
To find the outstanding balance of the loan immediately after 10 payments have been made using the prospective method, we can use the formula:
Outstanding Balance = Outstanding Principle x (1 + r)^n - Payment x ((1 + r)^n - 1) / r
Where:
- Outstanding Balance is the remaining balance after 10 payments
- Outstanding Principle is the initial loan amount
- r is the interest rate per period
- n is the number of periods
- Payment is the amount being paid at the end of each period
Using the given information, the outstanding balance after 10 payments would be:
Outstanding Balance = $20,000 x (1 + 0.02)^10 - $1,000 x ((1 + 0.02)^10 - 1) / 0.02 = $12,491.20
To find the outstanding balance of the loan immediately after 10 payments have been made using the retrospective method, we need to calculate the future value of the payments made. This can be done using the formula:
Outstanding Balance = Payment x ((1 + r)^n - 1) / r
Using the given information, the outstanding balance after 10 payments would be:
Outstanding Balance = $1,000 x ((1 + 0.02)^10 - 1) / 0.02 = $12,492.22