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Finance: What is Bond Amortization? 7 Views
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Description:
What is Bond Amortization? Bond amortization is simply the spreading out of the cost of the bond over time. Bonds have amortization schedules and these lay out how the bond is paid including principal and what is owed in interest.
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Transcript
- 00:00
Finance a la shmoop what is bond amortization? okay fancy term easy
- 00:08
concept the basic idea is that you have to "revalue" what a bond is
- 00:14
actually worth each period which usually means twice a year because bonds pay [Monthly calendar appears]
- 00:18
interest on the you know semester system yeah twice a year so let's say you've
- 00:22
paid seven hundred bucks for a bond with a 5% coupon which comes due for a
Full Transcript
- 00:26
thousand bucks in ten years over that time you'll have received two things the
- 00:31
5% per year interest from the bond in cash paid along the way and the [5% interest per year appears]
- 00:35
appreciation of the 700 bucks to become the thousand dollar par value at which
- 00:41
point it will eventually pay back its principal so to amortize the $300 of
- 00:46
appreciation of that bond over ten years while you could attribute 30 bucks a
- 00:51
year in appreciation each year such that after we'll say three and a half years
- 00:56
you'd hold the bond as having appreciated 3.5 times 30 bucks or $105 [Straight line appreciation formula appears]
- 01:04
in appreciation making the bond worth at that point in time eight hundred five
- 01:09
dollars oh yeah fancy but also pretty easy
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