Problem 5-22: Loan amortization

Jan sold her house on December 31 and took a $30,000 mortgage as part of the payment. The 10-year mortgage has a 9% nominal interest rate, but it calls for semiannual payments beginning next June 30. Next year Jan must report on Schedule B of her IRS Form 1040 the amount of interest that was included in the two payments she received during the year.

a-4. How do these values change for the second payment?

A	The portion of the payment that is applied to interest declines, while the portion of the payment that is applied to principal increases.
B	The portion of the payment that is applied to interest increases, while the portion of the payment that is applied tBo principal decreases.

C	The portion of the payment that is applied to interest and the portion of the payment that is applied to principal remains the same throughout the life of the loan.
D	The portion of the payment that is applied to interest declines, while the portion of the payment that is applied to principal also declines.

E	The portion of the payment that is applied to interest increases, while the portion of the payment that is applied to principal also increases.