A $50,000 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 lower if the interest rate were lower.
D) The last payment would have a higher proportion of interest than the first payment.
E) The proportion of interest versus principal repayment would be the same for each of the 7 payments.

Question

Quizplus · Accepted Answer

a,d,and e can be ruled out as incorrect by simple reasoning.b is also incorrect because interest in the first year would be loan amount × interest rate regardless of the life of the loan,so the interest payment would be identical for the first payment.Think about the situation where r = 0%,statement c is the "most logical guess".One could also set up an amortization schedule and change the numbers to confirm that only c is correct.

A $50,000 Loan Is to Be Amortized Over 7 Years,with