QUIZ - Amortization and Annuities

As a loan matures, larger portions go towards paying down the

• principal balance

• interest

• loan term

• none of the above

If you have an amortized loan, your monthly payment will _______________

• never be the same

• sometimes be the same

• always be the same

If a friend of yours had never heard of amortization before and asked you to explain how loan payments work, what would you say?

• 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 an 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

• Both statements are true.

Amortization is made up of what two parts?

• Interest and payment

• Principal and payment

• Interest and principal

• none of the above

Find the principal: The fixed payment is $250.50, the interest portion is $6.75

• 243.75

• 250.50

• 257.25

• 6.75

The loan principal of an auto loan has been paid down to $19,405. If the annual interest rate is 5.75% and the payment is $480.42, what part of the next payment is interest?

• $95.78

• $92.98

• $327.22

• none of the above

The loan principal of an auto loan has been paid down to $19,405. If the annual interest rate is 5.75% and the payment is $480.42, what part of the next payment is the principal portion?

• $867.86

• $573.40

• $92.98

• $387.44

Jason deposits $2,000 yearly into a retirement account (ordinary annuity). The account pays 7% compounded annually. How much money will be in the account after 25 years?

• $78,268.97

• $126,498.08

• $42,160.07

• $124,498.10

How do we know we are looking at an Annuity question versus just a compound interest question?

• a number has changed by a certain percentage

• Interest is compounded "n" times per year

• the periodic rate is the annual interest rate

• You are making regular payments instead of a lump sum deposit

An ordinary annuity has regular payments made at the _____________ of every compounding period.

• beginning

• middle

• end

• none of the above