Over the Life of a Mortgage, the Payment to Principal

question 74

Multiple Choice

Over the life of a mortgage, the payment to principal ________ and the portion to interest expense ________.

• A) increases; increases
• B) decreases; increases
• C) increases; decreases
• D) decreases; decreases

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Definitions:

Stock Split

A corporate decision to fragment its current shares into additional shares to raise the market fluidity of the shares.

Clientele Effect

A theory suggesting that the types of investors attracted to a company depend on the company's dividend policy and related tax treatments.

Compromise Dividend Policy

A strategy that aims to balance between retaining earnings for reinvestment and paying dividends to shareholders.

Residual Dividend Approach

A policy for determining dividend payments whereby dividends are set as the earnings left over after funding the company's capital expenditure and working capital needs.