Question

An amortization table reports the amount of interest and principal contained within each regularly scheduled payment used to repay an amortized loan.

Example Amortization Schedule

Year	Beginning Amount	Payment	Interest	Repayment of Principal	Ending Balance
1
2
3

Consider the amount of the interest payments included in each of the payments of an amortized loan. Which of the following statements regarding the pattern of the interest payments is true?

The portion of the payment going toward interest is smaller in the early years of the loan and increases as the loan is repaid.

The portion of the payment going toward interest is larger in the early years of the loan and decreases as the loan is repaid.

Everything else remaining constant, if you were to pay more than the minimum payment each year and apply the difference to the repayment of principal, the total amount of interest paid on the loan over its life would increase.

The total amount of interest paid over the life of a mortgage loan is equal to the total of all of the loan payments and the loan’s principal.

True or False. The periodic (for example, monthly, quarterly, or annual) payment for an amortized loan is determined as the payment term in the formula for the calculation of the present value of an annuity.

True

False

Your dream is coming true! You are about to complete the purchase of your first home. To do so, you will borrow $150,000 from a savings and loan association that requires an interest rate of 8.00% on your loan. To simplify your workload, assume that you will repay your mortgage loan over the next four years by making annual payments at the end of each year.

Complete the following loan amortization table by selecting the correct answers:

Year	BeginningAmount	Payment	Interest	Repaymentof Principal	EndingBalance
1	$150,000
2
3
4

Answer 1

Q1. True statement is: "The portion of the payment going toward interest is larger in the early years of the loan and decreases as the loan is repaid."

As the principal outstanding is higher in initial years, interest payments is also higher in initial years. As the amount of outstanding principle declines over the amortization schedule, interest also declines.

Q2. The periodic (for example, monthly, quarterly, or annual) payment for an amortized loan is determined as the payment term in the formula for the calculation of the present value of an annuity - True. (PMT is the function used for the periodic payment or annuity)

Q3.