11.5 Amortization Review

Front

Amortization is the paying off of debt with a ____________________ repayment schedule in regular installments over a period of time. Examples include a mortgage or a car loan.

Back

fixed

Front

A portion of each payment is for interest while the remaining amount is applied towards the __________________________ balance.

Back

principal

Front

Initially, a large portion of each payment is devoted to __________________________.

Back

interest

Front

As the loan matures, larger portions go towards paying down the ___________________________.

Back

principal balance

Front

If you have an amortized loan, your monthly payment will ______________________________.

Back

always be the same

Front

If a friend who’d never heard of amortization before asked you to explain how loan payments work, what would you say?

Back

Amortization is a scheduled breakdown of how much you’ll pay every month (fixed) to repay a loan. It shows what portion of your payment is going to interest and principal each month. Every month, you pay the interest due first, and then all remaining portions of your payment goes toward paying down the principal balance.

Front

Find the monthly payment necessary to pay off the loan with the following loan amount, the annual interest rate, and the length of the loan. Amount: $6000, Rate: 8%, Time: 3 years

Back

$188.19

Front

Find the monthly payment necessary to pay off the loan with the following loan amount, the annual interest rate, and the length of the loan. Amount: $1900, Rate: 8.25%, Time: 18 months.

Back

$112.59

Front

Mrs. Taormina has won the lottery for $3,400,000. She can take her prize as one lump sum of $1,500,000 or 20 yearly payments of $170,000 (interest rate of 10%). Choose the best statement below:

Back

She should take one lump sum of $1,500,000.