FIN 534 RANK Imagine Your Future /fin534rank.com FIN 534 RANK Imagine Your Future /fin534rank.com | Page 74

3)
The total dollar amount of principal being paid off each month gets
smaller as the loan approaches maturity.
4)
The amount representing interest in the first payment would be
higher if the nominal interest rate were 7% rather than 10%
5)
Exactly 10% of the first monthly payment represents interest
7. A $150,000 loan is to be amortized over 7 years, with annual end-
of-year payments. Which of these statements is CORRECT?
1)
The annual payments would be larger if the interest rate were
lower.
2) 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.
3)
The proportion of each payment that represents interest as opposed
to repayment of principal would be higher if the interest rate were lower.
4)
The proportion of each payment that represents interest versus
repayment of principal would be higher if the interest rate were higher.
5)
The proportion of interest versus principal repayment would be the
same for each of the 7 payments.
8. Which of the following statements is CORRECT?
1) A time line is not meaningful unless all cash flows occur annually.