Certified Government Financial Manager (CGFM) 2025 – 400 Free Practice Questions to Pass the Exam

Question: 1 / 875

What is the defining characteristic of level debt service?

Payments increase each year

Payments are lower in later years

Payments are approximately the same each year

Level debt service is characterized by payments that remain approximately the same each year throughout the term of the loan or bond. This type of payment structure provides predictability for budgeting and financial planning, as entities can anticipate the same cash outflow annually.

This consistency is achieved through a loan amortization schedule that balances principal and interest payments. At the beginning of the loan period, a larger portion of the payments may go toward interest, while later payments will include more principal as the outstanding balance declines.

The fixed nature of level debt service payments helps governments and organizations manage their financial commitments effectively and maintain stable cash flows. This structure contrasts with other forms of debt service, where payments might vary significantly or decline over time, creating less predictability in financial planning.

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Payments fluctuate widely based on market rates

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