Which of the following statements regarding a 30-year monthly payment amortized mortgage with a nominal interest rate of 8% is CORRECT?
A) exactly 8% of the first monthly payment represents interest.
B) the monthly payments will decline over time.
C) a smaller proportion of the last monthly payment will be interest, and a larger proportion will be principal, than for the first monthly payment.
D) the total dollar amount of principal being paid off each month gets smaller as the loan approaches maturity.
E) the amount representing interest in the first payment would be higher if the nominal interest rate were 6% rather than 8%.

Question

Quizplus · Accepted Answer

c is correct. b is clearly wrong, as are d and e. It is not obvious whether a is correct or not, but we could set up an example to see:
 $\begin{array} { l ll } 
\text { Loan } & 100000 \text { Term } & 30 \
\text { Rate } & 8 \% \text { Periods/Year } & 12 \
\text { Periodic rate } & 0.00666666667 \text { Total periods } & 360
\end{array}$ 
 $\begin{array} { l r r } 
\text { Payment } & - \$ 733.76 \text { Interest, Month } 1 & \$ 666.67 \
\text { Interest as \% of total \#360 payment: } & 1 \% \text { Irterest, Month } 360 & \$ 7.25 \
\text { Principal as \% of total \#360 payment } & 99 \% \text { Principal, Month } 360 & \$ 726.51
\end{array}$

Which of the Following Statements Regarding a 30-Year Monthly Payment