Temple Corporation purchased a piece of real estate, paying $400,000 cash and fi

Question

Temple Corporation purchased a piece of real estate, paying $400,000 cash and financing $700,000 of the purchase price with a 10-year, 15% installment note. The note calls for equal monthly payments that will result in the debt being completely repaid by the end of the tenth year. In this situation:

The aggregate amount of the monthly payments is $700,000. Each monthly payment is greater than the amount of interest accruing each month. The portion of each payment representing interest expense will increase over the 10-year period, since principal is being paid off, yet the payment amount does not decrease. The portion of each monthly payment representing repayment of principal remains the same throughout the 10-year period.

Explanation / Answer

B> Each monthly payment is greater than the amount of interest accruing each month.

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