Homework Answers
Solution
Answer- Principal portion of monthly payment
Each installemt = Principal portion+intrest part
Intrest=Outsatnding principal*intrest rate
Thus from above 2 equations we can see that as the principal outstanding decreases the intrest portion of each equal monthly payment decreases and the principal portion increases
In a standard mordgage the monthly payments are equal ,so the first option is wrong
The intrest part is calculated as intrest per period*Principal outstanding,therefore initially the intrest is high but keeps on decreasing as the payments are paid subsequently as the ,principal keeps on decreasing
Thus the intrest portion of monthly payment decreases with time
Since some portion of the principal is paid with each monthly payment thus the remaining principal decreases with the time
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