Question

Which of the following statements is FALSE concerning amortization schedules? a. The beginning balance of one year is equal to the ending balance of the following year. b. You can either level principal payments or level total payments but not both. c. The interest payment is calculated as the balance multiplied times the interest rate. d. The total payment equals the principal payment plus the interest payment. e. None of the above is false.

Answer 1

a. The beginning balance of one year is equal to the ending balance of the following year.

This statement is false.

Balance is the amount of loan that has to be repaid.

Every year the balance reduces as we pay our installments.

So the beginning balance of one year will be higher than the ending balance of next year. Hence the above statement is false.

b. You can either level principal payments or level total payments but not both.

c. The interest payment is calculated as the balance multiplied times the interest rate.

d. The total payment equals the principal payment plus the interest payment.

These statements are true.

• You can either pay equal installments every month(total payment) consisting of principal+interest or choose to pay level principal payments with the amount of interest changing every month.
• Interest payment = balance * interest rate
• Total payment = Principal + interest

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