Which of the Following Statements Regarding a 15-Year (180-Month) $225,000

question 82

Multiple Choice

Which of the following statements regarding a 15-year (180-month) $225,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

• A) the outstanding balance declines at a faster rate in the later years of the loan's life.
• B) the remaining balance after three years will be $125,000 less one third of the interest paid during the first three years.
• C) because the outstanding balance declines over time, the monthly payments will also decline over time.
• D) interest payments on the mortgage will increase steadily over time, but the total amount of each payment will remain constant.
• E) the proportion of the monthly payment that goes towards repayment of principal will be lower 10 years from now than it will be the first year.

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Definitions:

Component Cost

The expense associated with acquiring or manufacturing each individual part of a product or service.

Flotation Cost

The total costs associated with issuing new securities, including underwriting fees and other expenses.

Preferred Stock

A class of ownership in a corporation that has a higher claim on assets and earnings than common stock, typically with dividends that are paid out before those of common stocks.

CAPM

The Capital Asset Pricing Model, a theory that describes the relationship between systematic risk and expected return for assets, particularly stocks.