In preparation of your tax return, you need to calculate the interest charged on your loan so that you can claim it as a tax deduction. Specifically, you are interested in the financial year ending 30 June 2022.

For the purposes of this question, pretend that the repayment on 1 July 2022 is occurring on 30 June 2022 so that there are 12 repayments made in this financial year.

Further, the subscripts used for loan outstanding are measured in months, e.g. 240 is the loan outstanding after 240 months/20 years.

(1) In order to calculate the interest charged on the loan from 1 July 2021 to 30 June 2022, which value(s) of loan outstanding are needed?

a. L0 and L12

b. L12 only

c. L0 only

d. L0, L1, and L12

(2) What does the difference L0-L12 represent?

a. None of the other choices are correct

b. The principal repaid in the first 12 years of the loan.

c. The interest paid in the first year of the loan.

d. The principal repaid in the first year of the loan.

(3) What does the product L12*i12 represent?

a. The interest component of the 1313th repayment.

b. Nothing. This expression is complete nonsense.

c. The interest component of the 1212th repayment.

d. The interest paid in the second year.