Question

choose the correct answer below
a. an installment loan is an amount of money installed electronically into a bank account.
b. an installment loan is a loan that is paid off with equal regular payments
c. an installment loan is the amount of money owed at any particular time.
d. an installment loan is the time you have to pay back a loan in full
explain the meaning and use of the loan payment formula. choose the correct answer below
a. the loan payment formula is used to calculate equal monthly payments as the interest paid decreases and principal decreases
b. the loan payment formula is used to calculate equal monthly payments as the interest paid varies and principal increases
c. the loan payment formula is used to calculate annual payments as the interest paid varies and principal increases
d. the loan payment formula is used to calculate annual payments as the interest paid decreases and principal decreases

Explanation:

First Question (Installment Loan Definition)

• Option A is incorrect as installment loans aren't about electronic installation into an account.
• Option B correctly defines an installment loan as one paid with equal regular payments (e.g., car loans, mortgages).
• Option C describes a loan balance, not an installment loan.
• Option D describes the loan term, not the loan type.

• Loan payment formulas (like for amortized loans) calculate equal monthly payments. As payments are made, interest paid per period decreases (since principal owed reduces) and principal paid increases.
• Option A: Correctly states the formula calculates equal monthly payments, with interest paid decreasing and principal (paid) increasing (though wording says "principal decreases"—likely a slight wording issue, but the key is equal monthly payments and interest decreasing).
• Option B: Principal doesn't increase with payments.
• Options C and D: Loan payment formulas (for installment loans) are for monthly (not annual) payments in typical cases, and principal paid increases, interest decreases.

Answer:

B. An installment loan is a loan that is paid off with equal regular payments

Second Question (Loan Payment Formula)