easy · Principles of Finance time-value-of-money
Why does the principal component of an amortizing loan payment increase over time?
- Because the lender contractually increases the required percentage of principal owed in each monthly payment.
- Because as the balance declines, the interest charge falls, leaving more of the fixed payment to cover principal.
- Because the stated annual interest rate itself gradually and automatically decreases over the life of the loan agreement.
- Because inflation steadily makes the remaining principal balance worth less in real economic terms as the years go by.
Sign up free to see the explanation and track your rank →
More Principles of Finance time-value-of-money practice
- Which loan has the higher effective annual rate (EAR)?
- A perpetuity pays $100 every year forever. If the discount rate is 8%, what is the present
- According to the Pecking Order Theory, which of the following is a firm's least preferred
- What is the Multiple of Invested Capital (MOIC) for the equity investors?
- If the WACC is 10%, what is the Equivalent Annual Annuity (EAA) of Project A?
- What is the net profit per share for the investor?
- Using the formula for future value, what will the account balance be after 10 years?
- What is the primary difference between an 'Ordinary Annuity' and an 'Annuity Due'?