A Homeowner Could Take Out a 15-Year Mortgage at a 5.5

question 11

Multiple Choice

A homeowner could take out a 15-year mortgage at a 5.5 percent annual rate on a $195,000 mortgage amount,or she could finance the purchase with a 30-year mortgage at a 6.1 percent annual rate. How much total interest over the entire mortgage period could she save by financing her home with the 15-year mortgage (to the nearest dollar) ?

• A)$230,408
• B)$190,105
• C)$155,612
• D)$144,325
• E)$138,612

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Definitions:

Systematic Allocation

The methodical distribution of costs or revenues across different accounts, periods, or projects to match expenses with related revenues.

Expense Recognition

The accounting principle dictating that expenses are recorded when incurred, not necessarily when paid.

Financial Capital Maintenance

A concept where profit is only recognized if the financial amount of a company's net assets at the end of the period exceeds the financial amount at the beginning, excluding any distributions to, or contributions from, owners during the period.

Net Income

The amount of earnings left over after all expenses, including taxes and cost of goods sold, have been subtracted from total revenue, indicating the financial success or profitability of a company over a specified period.