ShmoopTube

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Finance a la shmoop what is bond amortization? okay fancy term easy

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concept the basic idea is that you have to "revalue" what a bond is

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actually worth each period which usually means twice a year because bonds pay [Monthly calendar appears]

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interest on the you know semester system yeah twice a year so let's say you've

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paid seven hundred bucks for a bond with a 5% coupon which comes due for a

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thousand bucks in ten years over that time you'll have received two things the

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5% per year interest from the bond in cash paid along the way and the [5% interest per year appears]

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appreciation of the 700 bucks to become the thousand dollar par value at which

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point it will eventually pay back its principal so to amortize the $300 of

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appreciation of that bond over ten years while you could attribute 30 bucks a

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year in appreciation each year such that after we'll say three and a half years

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you'd hold the bond as having appreciated 3.5 times 30 bucks or $105 [Straight line appreciation formula appears]

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in appreciation making the bond worth at that point in time eight hundred five

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dollars oh yeah fancy but also pretty easy

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