Final answer:
Every payment made toward an amortized loan consists of two parts: the interest and the principal repayment. Compound interest calculations include not just the initial amount borrowed but also the interest that accumulates over time. Bond issuance by a company is an example of a loan where periodic interest is paid and the principal is returned later.
Step-by-step explanation:
Every payment made toward an amortized loan indeed consists of two parts: interest and repayment of the principal. Simple interest is a calculation on the principal amount alone. However, amortized loans often involve compound interest, where interest is calculated on the initial principal and also on the accumulated interest from previous periods.
For example, if you were to only make minimum payments on a credit card, it would take a considerable amount of time to pay off the debt. Over time, the total repaid could be more than double the original amount borrowed due to the accumulation of interest. This illustrates the significance of understanding the terms of loan repayment and the impact of compound interest.
An understanding of bond issuance can also provide insight into how loans work. Companies may issue bonds as a way to borrow money, pledging to make periodic interest payments and to repay the principal at a later date. Bondholders receive these interest payments and have a claim on the company's assets if it fails to meet its obligations.