Row,Inc.needed some long-term financing and arranged for a 10-year,$100,000,7% mortgage loan on January 1,2010.Annual payments of $14,238 will be made on December 31 each year.Interest expense for the year ended December 31,2012 will be ________ interest expense for 2011.
A)higher than
B)the same as
C)lower than
D)The answer cannot be determined from the information given.

Question

Quizplus · Accepted Answer

Interest expense for 2012 will be lower than interest expense for 2011. This is because with each annual payment, a portion of the principal is also being paid off, reducing the amount of outstanding loan balance on which interest is being charged. Therefore, the interest expense will decrease over time.

Row,IncNeeded Some Long-Term Financing and Arranged for a 10-Year,$100,000,7% Mortgage