Which of the following statements pertaining to instalment notes with blended principal and interest payments is correct?
A) The portion of each instalment applied to the interest and principal will remain constant.
B) The portion of the instalment applied to the interest will depend on prevailing market interest rates, with the difference being applied to the principal.
C) The portion of the instalment applied to the principal will increase, while the portion applied to the interest will decrease over time.
D) The portion of the instalment applied to the principal will decrease, while the portion applied to the interest will increase over time.

Question

Quizplus · Accepted Answer

With instalment notes with blended principal and interest payments, the portion of the instalment applied to the principal will increase, while the portion applied to the interest will decrease over time. As the principal amount owed decreases, the amount of interest owed each month also decreases. Therefore, a larger portion of each instalment can be applied to the principal, reducing the overall interest paid over the term of the loan. This gradual decrease in interest payment and increase in principal payment is known as amortization.

Which of the Following Statements Pertaining to Instalment Notes with Blended