ture or flase question if the statement is false, please correct it 5: “PMT” in
ID: 2815795 • Letter: T
Question
ture or flase question
if the statement is false, please correct it
5: “PMT” in the PVA formula tells us the periodic mortgage payment for a fixed-rate fully amortized loan.
6: The principal part of a fixed mortgage loan payment can be found by multiplying the periodic interest rate by ending balance for a given period.
7: For fixed-rate fully amortized mortgage loans, more of the fixed payment goes towards principal as we approach the end of the loan term.
8: We can find the amount needed to pay off a fixed-rate fully amortized mortgage loan at any point in time by solving for the PV of the remaining payments.
Explanation / Answer
Answer 5: TRUE
Explanation: PMT in PVA formula gives periodic 'Payment' to be made for a fixed-rate fully amortized loan, given periodic rate of interest, principal amount, number of periodic payments required and information on whether the periodic payment is at beginning of period or at the end of period.
Answer 6: FALSE
Correct statement: The interest part of a fixed mortgage loan payment can be found by multiplying the periodic interest rate by beginning balance for a given period.
Explanation: We do not get principal part of fixed mortgage loan payment by multiplying the periodic interest rate by ending balance for a given period. We get the interest part by multiplying the periodic interest rate by beginning balance for a given period or by ending balance of previous period.
Answer 7: TRUE
Explanation: Every fixed periodic payment consists of interest payment for the period and a balance amount towards repayment of principal. As such with every fixed periodic payment, the 'balance of principal' goes on reducing and interest part of the fixed payment goes on reducing. As such as we approach the end of the loan term, more of the fixed payment goes towards principal.
Answer 8: TRUE
Explanation: At any point of time the amount needed to pay off a fixed rate amortized mortage is equal to the balance of principal at that point of time which is equal to PV of all remaining payments.
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