The time value concept/calculation used in amortizing a loan is the
A) present value of a dollar.
B) future value of a dollar.
C) future value of an annuity.
D) present value of an annuity.

Question

Quizplus · Accepted Answer

The time value concept/calculation used in amortizing a loan is the present value of an annuity. This is because when a loan is amortized, the borrower makes regular payments that include both principal and interest. These payments are a series of equal cash flows (an annuity) and the present value of these cash flows needs to be calculated in order to determine the size of the payments. Therefore, the present value of an annuity is the appropriate time value concept/calculation to use in amortizing a loan.

The Time Value Concept/calculation Used in Amortizing a Loan Is