Suppose That Over the Life of the Loan,the Total Interest

question 16

Multiple Choice

Suppose that over the life of the loan,the total interest expense for a monthly loan is $7,000,while the total interest payment for an annual loan is $8,000.Which of the below statements is FALSE?

• A)The difference reflects the reduction of the principal each month versus the annual reduction of the principal.
• B)The more frequent the payment,the lower the total interest expense over the life of the loan,even though the effective rate of the loan is higher.
• C)Reducing principal at a faster pace reduces the overall interest paid on a loan.
• D)The more frequent the payment,the lower the total interest expense over the life of the loan,even though the effective rate of the loan is lower.

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Definitions:

Impairment Loss

The amount by which the carrying amount of an asset or a cash-generating unit exceeds its recoverable amount.

Fair Value

The estimated market value of an asset or liability, reflecting the price it would fetch in an orderly transaction between market participants at the measurement date.

Book Value

The net value of a company's assets, minus its liabilities, as it appears on the balance sheet.