Question

True or False:

1. The annual percentage rate is the simple percentage cost of all finance charges over the life of the loan on an annual basis.
2. With a discount method single-payment loan, the entire interest charge is subtracted from the principal before you receive the money, and at maturity you repay the principal.
3. The APR is lower when money is lent under the discount method than when it is lent under the simple interest method.
4. Amortization refers to the process in which a large proportion of the early payments of an installment loan goes to cover principal, and the later payments have a larger proportion going towards the payment of interest.
5. Life insurance and health insurance are designed to transfer the catastrophic risk you can't afford to keep onto the insurance companies.

Answer 1

1. The annual percentage rate is the simple percentage cost of all finance charges over the life of the loan on an annual basis.

True, annual percentage rate (APR) is the annual rate charged for borrowing. APR is expressed as a percentage which represents the actual yearly cost of funds over the term of a loan.

2. With a discount method single-payment loan, the entire interest charge is subtracted from the principal before you receive the money, and at maturity you repay the principal.

True, entire interest charge is subtracted from the principal before you receive the money, and at maturity you repay the principal. Discount method always gives a higher annual percentage rate than the simple interest method at the same interest rate because it deducts the total interest paid from the amount of the loan borrowed

3. The APR is lower when money is lent under the discount method than when it is lent under the simple interest method.

False, discount method always gives a higher annual percentage rate than the simple interest method at the same interest rate because it deducts the total interest paid from the amount of the loan borrowed

4. Amortization refers to the process in which a large proportion of the early payments of an installment loan goes to cover principal, and the later payments have a larger proportion going towards the payment of interest.

False, an amortizing loan is a loan where the principal of the loan is paid down over the life of the loan according to an amortization schedule. Each payment to the lender will consist of a portion of interest and principal. In which large proportion of the early payments of an installment loan goes to cover interest, and the later payments have a larger proportion going towards the payment of principal.

5. Life insurance and health insurance are designed to transfer the catastrophic risk you can't afford to keep onto the insurance companies.

True, Insurance is extremely beneficial as it provides timely financial assistance in the case of catastrophic risk