For questions 1 9: A recent university graduate is purchasing a new Honda Civic LX Sedan for $20,345, which includes destination and handling charges. The term of the loan is 5 years (60 months). Payments are made monthly. The interest rate is 5%. The loan is a closed end credit loan. Sales tax is 7% (Indiana) and is included in the loan. Sales tax is owed on the new vehicle price minus the trade-in value. The graduate is trading in their current vehicle, which has a trade-in value of $4,000 and is owned free and clear. The only equity in the transaction is the trade-in vehicle. There currently are no rebate offers or other incentives by Honda on Civics.

1. Why is the interest so much more in the first month than in the last month?

Group of answer choices

Because in the first month interest is on the original loan amount and in the last month interest is only on the remaining balance of $328.67.

Because in the first month interest is on the original loan amount and in the last month interest is only on the remaining balance of $390.34.

Because in the first month interest is on the original loan amount and in the last month interest is only on the last two payments.

Because in the first month interest is on the purchase price of the vehicle and in the last month interest is only on the sales tax due.