Question

A $250,000 loan is to be amortized over 8 years, with annual end-of-year payments. Which of these statements is CORRECT? a. If the loan were amortized over 10 years rather than 8 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 8-year amortization plan. b. The proportion of each payment that represents interest as opposed to repayment of principal would be lower if the interest rate were lower. c. The proportion of interest versus principal repayment would be the same for each of the 8 payments. d. The last payment would have a higher proportion of interest than the first payment. e. The annual payments would be larger if the interest rate were lower.

Answer 1

Answer:

The answer is "Option b".

Explanation:

In this scenario, the second option, which would be the percentage within each transaction that's also interest instead of the full amount, would've been lower if the rate of interest were lower because interest-related transactions would have been higher at lower rates and conversely, as opposed to the main refunds.