Question
Which of the following payment methods amortizes a loan?
Multiple select question.
Fixed payments that result in a zero loan balance
Interest plus fixed amount
Fixed interest payments only
Single lump sum payment
Multiple select question.
Fixed payments that result in a zero loan balance
Interest plus fixed amount
Fixed interest payments only
Single lump sum payment
Answers
GPT-4o mini
To determine which payment methods amortize a loan, we should understand what "amortization" means. Amortization involves paying off a loan with a fixed repayment schedule in regular installments over time. These payments typically cover both principal and interest, eventually resulting in a balance of zero by the end of the loan term.
Now, let's evaluate the options provided:
1. **Fixed payments that result in a zero loan balance** - **Yes, this amortizes a loan**, as it implies a regular schedule of fixed payments that reduces the principal and interest, leading to a zero balance at the end.
2. **Interest plus fixed amount** - **Yes, this can amortize a loan**, assuming the fixed amount covers both the interest and reduces the principal over time.
3. **Fixed interest payments only** - **No, this does not amortize a loan**. If only interest is paid, the principal balance does not decrease, and the loan will not be fully paid off at the end of the term.
4. **Single lump sum payment** - **No, this does not amortize a loan**. A single lump sum payment typically refers to paying off the entire loan amount at once, rather than through regular installment payments.
Based on this analysis, the correct options that can amortize a loan are:
- Fixed payments that result in a zero loan balance
- Interest plus fixed amount
Now, let's evaluate the options provided:
1. **Fixed payments that result in a zero loan balance** - **Yes, this amortizes a loan**, as it implies a regular schedule of fixed payments that reduces the principal and interest, leading to a zero balance at the end.
2. **Interest plus fixed amount** - **Yes, this can amortize a loan**, assuming the fixed amount covers both the interest and reduces the principal over time.
3. **Fixed interest payments only** - **No, this does not amortize a loan**. If only interest is paid, the principal balance does not decrease, and the loan will not be fully paid off at the end of the term.
4. **Single lump sum payment** - **No, this does not amortize a loan**. A single lump sum payment typically refers to paying off the entire loan amount at once, rather than through regular installment payments.
Based on this analysis, the correct options that can amortize a loan are:
- Fixed payments that result in a zero loan balance
- Interest plus fixed amount