Accretion is the gradual increase in the size or mass of an object due to the accumulation of matter from surrounding space. The most commonly used example of accretion is the growth of a star by the gravitational attraction of dust and gas particles.
The word “accretion” can also be used in finance to refer to the increased value of a security due to the addition of interest or dividends. For example, if you purchase a bond for $1,000 that pays 5% interest per year, the value of your bond will increase by $50 at the end of the first year. This increase in value is known as “interest accretion.”
Overview
Accretion is the gradual increase in size or quantity of something. In finance, accretion is the interest added to the principal of a debt instrument, typically a bond, that increases its face value. For example, if a bond has a $1,000 face value and pays 5% annual interest, the accretion would be 50 cents per year.
What Is Accretion?
Accretion is the gradual increase in the size of an object due to the accumulation of matter from its surroundings. It is a common process in astrophysics and is responsible for the growth of objects such as stars, planets, and moons.
The word “accretion” is derived from the Latin verb “accrescere,” which means “to grow.” In astrophysics, accretion refers to the growth of a celestial body by the gradual accumulation of matter from its surroundings. This process can occur via two main mechanisms:
1) The direct capture of matter by the gravitational field of the body; or
2) The collision and merging of two bodies.
The most well-known examples of accretion are the formation of stars and planets. In both cases, accretion plays a crucial role in the growth of these objects.
Stars form via the accretion of gas and dust within molecular clouds. As gravity pulls more and more material into the center of the cloud, it begins to collapse. The resulting increase in pressure and temperature at the center triggers nuclear fusion, which leads to the birth of a star.
Planets form in a similar fashion, but on a much smaller scale. Instead of collapsing under their own gravity, they grow by accreting gas and dust from the protoplanetary disk that surrounds their parent star. As more material is added to their mass, they begin to attract even more material
How Accretion Works
In order for accretion to occur, there must first be a dense core in place. This core forms as a result of the gravitational collapse of a giant molecular cloud. Once the collapse begins, it becomes unstoppable due to the immense gravity of the cloud. As the cloud collapses, it spins faster and faster due to conservation of angular momentum. This spinning causes the cloud to flatten into a disc shape.
As the collapse continues, clumps begin to form within the disc. These clumps grow larger and larger as they attract more and more material from the disc. Eventually, they become so large and heavy that they begin to sink towards the centre of the disc. As they sink, they pick up speed and rotate even faster.
At the same time, the infalling material heats up due to friction. This heat causes gas and dust within the disc to start swirling around in a vortex. The combination of all these forces – gravity, rotation, and infalling material – creates an extremely dense environment at the centre of the disc. It is within this dense environment that accretion takes place.
Accretion is the process by which matter falls onto aobject (such as a star or black hole) from an orbiting body (such as a disk of gas or dust). As this happens, both the object and its orbit increase in size. The object grows in mass, while its orbit widens. This increase in size is due to gravitational attraction between the object and the
Examples of Accretion
There are many types of accretion, but here are a few examples to help you better understand the concept:
1. The growth of a glacier as it slowly moves down a mountain.
2. The gradual buildup of sediments in a river delta.
3. The formation of new planets and moons as dust and gas coalesce in space.
4. The gradual accumulation of interest on a bond or other debt instrument.
5. The growth of a pearl inside an oyster as layers of nacre are deposited around a foreign object
Controversy
Accretion has been a controversial financial term ever since it was first introduced. The main criticisms of accretion are that it is too vague and can be easily manipulated.
Some argue that accretion is nothing more than a way for companies to artificially inflate their earnings. This is because accretion can be used to recognized revenue from contracts that have not yet been completed. This means that a company can recognize revenue before it actually receives the cash.
Others argue that accretion is an important tool for accounting for the true value of long-term contracts. This is because accretion can help to smooth out the volatility of earnings over time. This can provide valuable information for investors when making decisions about whether to invest in a company.
What Is Accretion? – Accretion Financial Definition
Accretion is the gradual buildup of something, typically over a long period of time. In finance, accretion refers to the gradual increase in the value of a bond or other security as it approaches its maturity date.
Most bonds are issued with a face value, which is the amount the issuer agrees to pay back to the bondholder when the bond matures. If interest rates have fallen since the bond was issued, the market value of the bond will be greater than its face value. The difference between the face value and market value is known as the accretion.
As a bond nears its maturity date, its market value will approach its face value. The closer it gets to maturity, the less time there is for interest rates to change, and the smaller the accretion will be.
The term “accretion” can also be used more generally to refer to any gradual increase or growth.
