#1
What is loan amortization?
A process of paying off a loan over time with regular payments
ExplanationGradually paying off a loan with regular payments
#2
What is the purpose of an amortization table?
To track the allocation of each payment between principal and interest
ExplanationTracking payment allocation
#3
What does the term 'amortization' mean in the context of loans?
Gradually paying off a loan with regular payments
ExplanationGradual loan repayment
#4
What does the term 'amortization period' refer to?
The duration of the loan term
ExplanationLength of loan term
#5
Which of the following statements about amortization is true?
The last payment typically pays off the entirety of the principal amount
ExplanationFinal payment clears principal
#6
What is the purpose of an amortization calculator?
To generate an amortization schedule
ExplanationGenerating repayment plan
#7
Which of the following formulas is used to calculate the monthly payment for an amortizing loan?
PMT = PV * r * (1 + r)^n / ((1 + r)^n - 1)
ExplanationFormula for calculating monthly payment
#8
What does the term 'amortization schedule' refer to?
A plan outlining the repayment of a loan, including the principal and interest amounts for each payment period
ExplanationPlan detailing loan repayment
#9
What happens to the proportion of interest versus principal in each payment over the life of a fixed-rate amortizing loan?
The proportion of interest decreases while the proportion of principal increases
ExplanationInterest decreases, principal increases over time
#10
Which of the following factors affects the monthly payment amount of an amortizing loan?
All of the above
ExplanationMultiple factors affect payment
#11
What is the primary advantage of making extra payments towards an amortizing loan?
Decreases the loan term and total interest paid
ExplanationReduces loan term and interest
#12
What is the formula to calculate the remaining balance on a loan after n payments have been made?
Remaining Balance = PV * (1 - (1 + r)^-n) / r
ExplanationFormula for remaining balance
#13
How does changing the loan term affect the monthly payment amount for an amortizing loan?
Increasing the loan term decreases the monthly payment
ExplanationLonger term reduces monthly payment
#14
Which of the following loan types typically does not follow an amortization schedule?
Interest-only loan
ExplanationLoan with no amortization
#15
How does an adjustable-rate mortgage (ARM) differ from a fixed-rate mortgage in terms of amortization?
ARMs have variable interest rates that can change over time, affecting the amortization schedule, while fixed-rate mortgages maintain the same interest rate throughout the loan term.
ExplanationVariable vs. fixed interest rates
#16
What is negative amortization?
When the loan balance increases over time due to insufficient payments to cover the interest
ExplanationLoan balance growth due to insufficient payments
#17
In loan amortization, what does the term 'fully amortizing loan' mean?
A loan with fixed payments that fully pay off the principal and interest by the end of the term
ExplanationLoan with complete repayment by term end