Question

Interest assessed during each payment period based on the current outstanding balance of the installment loan is referred to as which method of calculating interest?

a) Simple interest
b) Compound interest
c) Amortization
d) Prepayment penalty

Answer 1

The interest assessed during each payment period based on the current outstanding balance of an installment loan is referred to as Amortization.

Step-by-step explanation:

The interest assessed during each payment period based on the current outstanding balance of the installment loan is referred to as Amortization.

Amortization is a method of calculating interest where each payment is applied to both the principal amount and the interest. As the loan is paid off, the amount of interest decreases and the amount of principal increases. This method is commonly used for mortgage loans and car loans.