Fully amortizing bond example

[archived_user]

I dont get the math behind the amortizing bond example of the shweser notes. The value 819.03 is 1000-180.97 (180.97 = 230.97-(1000*5%)
But how do we get 629.01?
Thanks for your help.
.

 

[archived_user]

819.03* 1.05 - 230.97 OR 230.97 *(1 - 1.05^-3)/0.05 will both get you to 629.01.

 

[archived_user]

Just adding a brief explanation to breadmaker’s answer.
Outstanding principal is $819.03 at the end of year 1. Interest expense the coming year is 819.03*0.05 = $40.95. PMT includes both interest expense and principal repayment, hence the latter would be 230.97-40.95 = $190.02. Principal at the end of year 2 would then be 819.03-190.02 = $629.01.

 

[archived_user]

I wrote an article on amortization tables that covers this, along with a number of other amortization situations (partially amortized loans, capital leases, bond premia and discounts) here: http://www.financialexamhelp123.com/amortization-tables/
(Full disclosure: as of 4/25/16 there is a subscription fee for the articles on my website; however, you can find free sample articles here: http://www.financialexamhelp123.com/sample-articles/)