Question

Which of the following statements is true of amortization?

A) With an amortized loan, a larger proportion of each month's payment goes toward interest in the early periods.
B) With an amortized loan, a larger proportion of each month's payment goes toward interest in the later periods.
C) With an amortized loan, a smaller proportion of each month's payment goes toward interest in the early periods.
D) With an amortized loan, the interest portion of each month's payment remains unchanged.

Answer 1

With an amortized loan, a larger proportion of each month's payment goes toward interest in the early periods.

Step-by-step explanation:

The correct statement about amortization is A) With an amortized loan, a larger proportion of each month's payment goes toward interest in the early periods. Amortization refers to the process of gradually paying off a loan over time through regular payments, which include both principal and interest. At the beginning of the loan term, the outstanding balance is higher, resulting in a larger portion of the payment going towards interest. As the loan is paid down, the interest portion decreases, and more of the payment goes towards the principal.