This post addresses a loan amortization practice question.
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A $150,000 loan is to be amortized over 7 years, with annual end-of-year payments. Which of these statements is CORRECT?
a.) The annual payments would be larger if the interest rate were lower.
b.) If the loan were amortized over 10 years rather than 7 years, and if the interest rate were the same in either case, the first payment would include more dollars of interest under the 7-year amortization plan.
c.) The proportion of each payment that represents interest as opposed to repayment of principal would be higher if the interest rate were lower.
d.) The proportion of each payment that represents interest versus repayment of principal would be higher if the interest rate were higher.
e.) The proportion of interest versus principal repayment would be the same for each of the 7 payments.
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The solution provides the correct choice with explanation to the multiple choice practice question that asks, A $150,000 loan is to be amortized over 7 years, with annual end-of-year payments. Which of these statements is CORRECT?
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The proportion of each payment that represents interest versus repayment of principal would be higher if the interest ...
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