For a ten-year installment note, the portion of the periodic installment payment that represents interest in the third year is:______

a. the same as In the fourth year.

b. the same as in the first year.

c. less than In the fourth year.

d. more than in the fourth year

In a ten-year install plan, the interest portion in the installment gradually decreases because the outstanding amount decrease with the payment of installment.

The installment has two portions

Interest Payment on the outstanding amount
Principal payment

The interest is charged on the outstanding amount of the loan. As the installment is paid the principal portion reduces the outstanding amount of the loan. The interest portion of the installment decreases gradually and the principal portion of the installment increases.

There is a higher payment of interest in the early installment payments that gradually decreases.

The interest payment made in the third year will be higher than the interest payment made in the fourth year

ANDROMACHEGO ANDROMACHEGO · Answer 2

The interest in the third year is more than in the fourth year.

The following information should be considered:

In the case of installment payment note, the same equal installment should be paid at each year. It includes both interest & principal amount.
The principal amount should decreased when the each installment is paid.
But the installment amount should remains the same, and the interest should decreased.
So the interest should be high in first year and then it decreased each year.

Therefore we can conclude that the interest in the third year is more than in the fourth year.

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