Question

1. ______________ is a necessary characteristic for amortized loans over its life.

• Either equal or unequal principal payments

• One lump-sum principal payment

• Increasing payments

• Equal interest payments

• Declining periodic payments

2. Amy and Anna are of the same age. Amy invests $4,000 at 6 percent at age 25. Anna invests the same amount at the same interest rate at age 30. Both investments compound interest annually. Both of them retire at age 60 and neither adds nor withdraws funds prior to retirement.

Pick the correct statement regarding this from below.

• Amy will have less money when she retires than Anna.

• Anna will earn more interest on interest than Amy.

• Anna will earn more compound interest than Amy.

• If both Amy and Anna wait to age 70 to retire they will have equal amounts of savings.

• Amy will have more money than Anna at any age.

Answer 1

Amortized loans are loan where equal periodic payments is made over life of loan. Amount paid per period is fixed. Any amount paid is first applied towards interest on Opening balance of loan, then remainder is applied towards principal.

So, in beginning time interest paid is more and principal paid is less. Gradually interest payment declines, as balance declines and principal payments increased.

So, there is unequal principal payments during life of loan.

Answer is A, Either Equal or unequal principal payments is necessary characteristic of amortized loans over its life.