Which financial process involves paying off debt with regular, fixed payments over time?

Which financial process involves paying off debt with regular, fixed payments over time?

• A. Dividend
• B. Yield
• C. Depreciation
• D. Amortization

Answer: (D)

Amortization is the process of paying off debt with regular, fixed payments over time. Each payment is designed to cover both interest and a portion of the principal, so the loan balance decreases gradually until it’s paid off in full. Early in the term, a larger share of each payment goes toward interest, and over time the balance available for principal increases, accelerating debt repayment. This creates an amortization schedule that guarantees the loan is fully repaid if all payments are made on time. Dividends are cash returns to shareholders, not debt repayment. Yield refers to the rate of return on an investment. Depreciation is an accounting method for allocating the cost of a tangible asset over its useful life.

Amortization is the process of paying off debt with regular, fixed payments over time. Each payment is designed to cover both interest and a portion of the principal, so the loan balance decreases gradually until it’s paid off in full. Early in the term, a larger share of each payment goes toward interest, and over time the balance available for principal increases, accelerating debt repayment. This creates an amortization schedule that guarantees the loan is fully repaid if all payments are made on time.

Dividends are cash returns to shareholders, not debt repayment. Yield refers to the rate of return on an investment. Depreciation is an accounting method for allocating the cost of a tangible asset over its useful life.