E14 Bond Amortization

Question 1

how does the amortization schedule for bonds work?

Answer 1

you start with your original book value then you have your coupons and amts of interest for each respective time period. then from your book value to amortize toward the redemption value

Question 2

what is the differnce in terminology for bond amortization?

Answer 2

• Instead of outstanding balance for bonds we say book value.
• Instead of loan payment for bonds we say coupon payment.
• Instead of principal payment for bonds we say write-down or write-up depending on if it is a premium or discount bond.

Question 3

how do we know if the bond is write up or write down?

Answer 3

If P > C then its a discount bond or write down.

If P < C then its a premium or write up

Question 4

what are the Book Value amortization formulas?

Answer 4

BV_t = Fr a angle n-t + Cv^(n-t)
BV_t = P(1+i)^t - Fr s angle t i
BV_t = BV_t-1 - P_t

Question 5

what are is the eqn for I_t for bond amortization?

Answer 5

I_t = BV_t-1 * i

Question 6

what are the eqns for P_t or principal of time t?

Answer 6

P_t = Fr - I_t
P_t = (Fr - Ci)v^(n-t+1)

Question 7

what is the eqn for when each princip payments gorws by a factor of 1+i?

Answer 7

P_t+k = P_t(1+i)^k

Question 8

what is write up and write down intuitively?

Answer 8

write up/down is the principal that is added or subtracting based on whether the bond is write up or write down, premium or discount respectively.