MATH 2FM3 Lecture Notes - Lecture 21: Amortization Schedule
7 Nov 2015
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4. 2 amortization of a bond: let us determine the amount of interest received and principal returned on a bond coupon or redemption payment. Ob0 = p = f n j + f r an(cid:101)j = f [1 + (r j) an(cid:101)j] and no coupon payment, no interest due, no principal repaid. 0: outstanding balance at time 1 is. Ob1 = p1 = f [1 + (r j) an 1(cid:101)j], with payment of coupon f r, the interest due is. 1: outstanding balance at time 2 is. Ob2 = p2 = f [1 + (r j) an 2(cid:101)j], with payment of coupon f r, the interest due is. I2 = j ob1 = f [j + (r j)(1 n 1. P r2 = f r i2 = f (r j) n 1 j j. )] and principal repaid is: in general, outstanding balance at time k is.
