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In: Finance

Compounding interest rates mean you earn interest on _______________. Group of answer choices original principal only...

Compounding interest rates mean you earn interest on _______________.

Group of answer choices

original principal only

interest only

original principal and interest

Which of the following is correct regarding an amortized loan with monthly payments?

Group of answer choices

The proportion of the monthly payment that goes toward interest will steadily decrease over time.

The interest rate will steadily decrease over time.

The dollar amount of interest in each payment stays the same over time.

The amount of the monthly payment will steadily decrease over time.

The loan balance of an amortized loan is the __________ of the remaining payments.

Group of answer choices

Future value

Sum

Present value

Other things being equal, how should the amount of each payment in an amortized loan be affected if you borrow less?

Group of answer choices

Increase.

Decrease.

No change.

Solutions

Expert Solution

Question: Compounding interest rates mean you earn interest on _______________.

Answer: Original principal and interest; In this methodology, the interest is calculated on the accrued portion of the interest as well along with the Principal. This happens are regular intervals as agreed - weekly, fortnightly, monthly, quarterly, semi-annually or annully.

Question: Which of the following is correct regarding an amortized loan with monthly payments?

Answer: The proportion of the monthly payment that goes toward interest will steadily decrease over time. The monthly payment remains constant over the period of the the loan; However, the apportionment of the payment towards Princial and Interest components changes. As the time progresses, the apportionment towards interest component decreases and towards principal component increases.

Question: The loan balance of an amortized loan is the __________ of the remaining payments.

Answer: Present value; The value of the outstanding loan balance is the Present Value of the future payments for a given period at a given rate of interest.

Question: Other things being equal, how should the amount of each payment in an amortized loan be affected if you borrow less?

Answer: No Change. Irrespective of the borrowed portion, the value of each payment in an amortised loan remain static through out the period of the loan. Hence, they are termed as Equated Periodic Installments.

jeff jeffy answered 2 years ago
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