Which of the Following Statements Regarding a 20-Year (240-Month) $225,000

question 165

Multiple Choice

Which of the following statements regarding a 20-year (240-month) $225,000, fixed-rate mortgage is CORRECT? (Ignore taxes and transactions costs.)

• A) the outstanding balance declines at a slower rate in the later years of the loan's life.
• B) the remaining balance after three years will be $225,000 less one third of the interest paid during the first three years.
• C) because it is a fixed-rate mortgage, the monthly loan payments (which include both interest and principal payments) are constant.
• 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:

Entrepreneur's Forgone Interest

The potential interest income an entrepreneur sacrifices by investing their own money into their business instead of depositing it for interest.

Implicit Costs

Non-monetary opportunity costs that are not directly incurred as a result of performing business activities.

Entrepreneur's Potential Earnings

The forecasted income an entrepreneur expects to earn from a business venture, taking into account both risks and opportunities.

Annual Lease

A contract or agreement that outlines the terms under which one party agrees to rent property from another party for a period of one year.