Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

10. Time Value of Money

Time Value of Money Equations

Financial Accounting

10. Time Value of Money

Time Value of Money Equations

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Multiple Choice

In a standard loan amortization schedule, what happens to the amount of principal paid with each successive payment over time?

The principal portion of each payment decreases over time.

The principal portion of each payment remains constant over time.

The principal portion of each payment increases over time.

The principal portion is only paid at the end of the loan term.

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Verified step by step guidance

Understand the structure of a standard loan amortization schedule: In a standard loan amortization schedule, each payment is divided into two parts—interest and principal. The total payment amount typically remains constant over time, but the allocation between interest and principal changes.

Recognize how interest is calculated: Interest is calculated on the remaining loan balance (principal). At the beginning of the loan term, the principal balance is at its highest, so the interest portion of the payment is also at its highest.

Observe the relationship between interest and principal: As the loan balance decreases with each payment, the interest portion of the payment decreases. This allows a larger portion of each subsequent payment to go toward reducing the principal.

Conclude the trend: Over time, the principal portion of each payment increases as the interest portion decreases. This is a key characteristic of a standard loan amortization schedule.

Verify the correct answer: Based on the explanation above, the correct answer is that the principal portion of each payment increases over time.