Question

Fatiha takes out a loan of $6000, which she repays by the amortization method at a nominal rate of 9.6% compounded monthly. What is the key characteristic of the amortization method?

a) Fixed monthly payments
b) Variable interest rates
c) One-time lump-sum payment
d) Interest-only payments

Answer 1

The key characteristic of the amortization method is fixed monthly payments.

Step-by-step explanation:

The key characteristic of the amortization method is fixed monthly payments.

When using the amortization method, the loan is repaid in equal monthly installments over a set period of time. Each payment consists of both principal and interest, with the interest amount decreasing over time as the outstanding balance decreases. This ensures that the loan is fully paid off by the end of the term.

In Fatiha's case, she will make fixed monthly payments until the $6000 loan is fully repaid.