Question

Which of the following is not true about loan amortization in a given loan? A. Both the interest payment and principal payment will be identical every period B. Both the interest payment and principal payment will add up to same amount every period C. To pay off the principal as well as to pay off the interest on the loan. D. Over the duration of the loan the interest payment will decrease and principal payment will increase over time.

Answer 1

Answer:

A. Both the interest payment and principal payment will be identical every period

Explanation:

Loan Amortization is a process where the loan amount is broken into a series of payments over a fixed time. In this process -

• The person pays off the interest and principal in different amounts every month.
• The total amount of payment including interest and principal amount remains same in each period.
• In the beginning the interest costs are higher and the principal in paid in lower amounts.
• As the time passes the interest decreases and the payment mainly goes towards the principal amount.