CFA Level I · CFA Level I Exam · Fixed-Income Instrument Features
A 5-year bond has a par value of 1,000,000 and is partially amortizing, with annual payments that repay 150,000 of principal each year. The amount most likely due as the balloon payment at maturity, in addition to the final regular payment, is closest to:
The balloon payment is about 250,000. Five annual principal repayments of 150,000 total 750,000, leaving 250,000 of the 1,000,000 par value unpaid. That remainder is due at maturity as the balloon payment on a partially amortizing bond.
- A250,000Correct
- B750,000
- C850,000
Explanation
Over the 5 years, regular payments repay 5 x 150,000 = 750,000 of principal, if the final regular payment is also counted. The remaining principal is 1,000,000 - 750,000 = 250,000, which is the balloon. The 750,000 option is the amount already amortized, not the balloon.
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