Fixed income instrument

chandniwadhwani92
Finance Junkie
Posts: 166
Joined: Mon Oct 06, 2014 7:36 am

Fixed income instrument

Postby chandniwadhwani92 » Sat Dec 20, 2014 3:01 pm

A 1000 face value 5 year bond annual coupon 5%

Fully amortizing loan
PMT= 230.97 230.97 230.97 230.97 230.97
Principal remainig- 819.0 629.01 429.49 219.99 0
How did they calculate PMT and principal amount in fully amortising bonds
can u show calculation
Partially amortizing bonds
PMT- 194.78 194.78 194.79 194.78 194.78
Principal remainig- 855.22 703.20 543.58 375.98 0
How did they calculate PMT and principal in partiall amortising bond

SOURCE OF QUESTION- Schweser Fixed income page 16 Boojk 5

edupristine
Finance Junkie
Posts: 722
Joined: Wed Apr 09, 2014 6:28 am

Fixed income instrument

Postby edupristine » Thu Jan 29, 2015 9:51 am

Hi, in fully amortizing bond, principal value is also given out along with the interest payment. so in the end all the amount is paid off. while in partially amortizing bond principal is paid off in the end. also in the book, the question is only for explanatory purposes. there is no need to understand the mathematical calculation in fully amortizing and partially amortizing bonds.


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