Partially Amortized Bond with a balloon payment.

[archived_user]

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

 

[archived_user]

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

 

[archived_user]

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?

 

[archived_user]

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.