Q19
Single choice
The balloon payment technique uses level payments of principal and interest but for a shorter period than is required to retire the loan fully during its term. For example, a loan with a 8.5 percent interest rate utilizing a 25-year amortization schedule with a 7-year maturity results in only $111 of each $l,000 principal being repaid. Thus, $889 of each $l,000 originally borrowed constitutes the balloon amount due at maturity.