A Mortgage Note Payable with a Fixed Interest Rate Requires

question 85

Short Answer

A mortgage note payable with a fixed interest rate requires the borrower to make installment payments over the term of the loan. Each installment payment includes interest on the unpaid balance of the loan and a payment on the principal. With each installment payment indicate the effect on the portion allocated to interest expense and the portion allocated to principal. $\begin{array}{cc} \text { Portion Allocated } & \text { Portion Allocated } \\ \underline{ \text { to Interest Expense } }& \underline{\text { to Payment of Principal }} \\\end{array}$
A) $\begin{array}{cc} &&\text { Increases} &&&&& \text { Increases } \\\end{array}$
B) $\begin{array}{cc} &&\text { Increases } &&&& \text { Decreases } \\\end{array}$
C) $\begin{array}{cc} &&\text {Decreases } &&&& \text { Decreases } \\\end{array}$
D) $\begin{array}{cc} && \text { Decreases } &&&& \text { Increases } \\\end{array}$

• A)\(\begin{array}{cc}
• &&\text { Increases} &&&&& \text { Increases } \\\end{array}\)
• B) \(\begin{array}{cc} &&\text { Increases } &&&& \text { Decreases } \\\end{array}\)
• C) \(\begin{array}{cc} &&\text {Decreases } &&&& \text { Decreases } \\\end{array}\)
• D)\(\begin{array}{cc} && \text { Decreases } &&&& \text { Increases } \\
• \end{array}\)

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Definitions:

Scenario Analysis

Scenario Analysis is an analytical method used to examine different possible future events or scenarios and their potential impacts on decision outcomes.

Positive Net Present Value

An indicator that an investment is expected to generate more cash than its initial cost, leading to a profitable outcome.

Marginal Tax Rate

The marginal tax rate is the rate at which an additional dollar of income would be taxed, highlighting how much of the next dollar earned will go to taxes.

Financial Break-even Point

The level of earnings before interest and taxes (EBIT) where the company's total revenues equals its total expenses.