Question

Which of these is the best example of trade credit?
(1 point)
A plumbing company decides to only accept credit cards.
A potato chip factory uses electronic transfers to pay employees.
A textile factory pays for a large fabric order over several months.
A pretzel store wants to open a second location and needs a bank loan.

Why does the amount of interest go down every month according to this amortization table?
Month
Payment
Principal
Interest(9%)
PrincipalBalance
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)
If the principal payment goes up, so does the interest.
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 principal decreases with every payment, so there is less interest to pay

Answer 1

1) A textile factory pays for a large fabric order over several months.
Explanation: trade credit is supplier financing — buying goods now and paying the supplier later.

2) The principal decreases with every payment, so there is less interest to pay.
Explanation: interest is charged on the remaining principal balance; as that balance falls, the interest portion of each payment falls.