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Partially Amortized Bond with a balloon payment.

Hi All,

Can anybody please advise how to calculate payment in year 1 on a Partially Amotrized Bond with a balloon payment at maturity.

Per reading 52- the answer should be $201.92

Details:

Principal amount: $1000

Maturity: 5 years

Balloon payment at maturity: $200

Coupon rate: 6%

Market interest rate: 6% (constant)

Thanks

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Hey there. you can refer to the following for the formula to get the answer you need.

Hope this helps.

This is how I arrived to it on BA II plus professional, FV=-800, PV=0, I/Y=6, N=5, CPT PMT=141.92. Add annual interest of $60 (6% of $1000) to get $201.92. Can anyone please confirm if the method is correct?

satwalkar wrote:

This is how I arrived to it on BA II plus professional, FV=-800, PV=0, I/Y=6, N=5, CPT PMT=141.92. Add annual interest of $60 (6% of $1000) to get $201.92. Can anyone please confirm if the method is correct?

You’re calculating what annual dollar amount is needed to accumulate to the $800 required at time 5, which you have correctly calculated as 141.92.  In addition, you have to pay the annual coupon of $60 for a combined total of 201.92.  seanwilliam’s formula is also correct:  it is using time 0 as the focal date for all TVM calcs, whereas your formula is using time 5 as the focal date. yes

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