Which of the following is true about fully amortizing loans? A. The principal balance decreases each...
Which of the following is true about fully amortizing loans?
A. The principal balance decreases each month.
B. The principal portion of the payment decreases each month.
C. The interest portion of the payment increases each month.
D. The principal portion of the payment is the same every month
Homework Answers
The correct answer is
A)The principal balance decreases each month.
Reason- In a fully amortizing loan,the principle balance decreases every month.The periodic payment initially consist a larger portion of interest payment and small portion of principle payment.However as the time goes by, the interest portion decreases and the principal portion in the periodic payment increases.The increasing portion of principle payment in periodic payment actaully helps in amortization of loan to 0.
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Which of the following is true about fully amortizing loans?
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