Question
Why does the amount of interest go down every month according to this amortization table?
Month
Payment
Principal
Interest (9%)
Principal Balance
1
$874.50
$799.50
$75.00
$9,200.50
2
$874.50
$805.50
$69.00
$8,395.00
3
$874.50
$815.50
$63.00
$7,583.50
(1 point)
Responses
If the principal payment goes up, so does the interest.
If the principal payment goes up, so does the interest.
Lenders are required to reduce the interest rate as the loan is paid off.
Lenders are required to reduce the interest rate as the loan is paid off.
The payments increase as the loan is paid off, so there is less interest.
The payments increase as the loan is paid off, so there is less interest.
The principal decreases with every payment, so there is less interest to pay.
Month
Payment
Principal
Interest (9%)
Principal Balance
1
$874.50
$799.50
$75.00
$9,200.50
2
$874.50
$805.50
$69.00
$8,395.00
3
$874.50
$815.50
$63.00
$7,583.50
(1 point)
Responses
If the principal payment goes up, so does the interest.
If the principal payment goes up, so does the interest.
Lenders are required to reduce the interest rate as the loan is paid off.
Lenders are required to reduce the interest rate as the loan is paid off.
The payments increase as the loan is paid off, so there is less interest.
The payments increase as the loan is paid off, so there is less interest.
The principal decreases with every payment, so there is less interest to pay.
Answers
GPT-4o mini
The correct response is:
**The principal decreases with every payment, so there is less interest to pay.**
As you make monthly payments on a loan, the portion of each payment that goes towards interest decreases because interest is calculated on the remaining principal balance. As you pay down the principal, the principal balance decreases, resulting in a lower interest amount in subsequent months.
**The principal decreases with every payment, so there is less interest to pay.**
As you make monthly payments on a loan, the portion of each payment that goes towards interest decreases because interest is calculated on the remaining principal balance. As you pay down the principal, the principal balance decreases, resulting in a lower interest amount in subsequent months.