In view of the definition of the amortised cost, the following formula is used for its calculation:

• At further payment dates, the amortised cost equals the amortised cost of the previous payment date, plus the difference of the current cumulative total amortisation TA(t_n) and the one from the previous payment date TA(t_n-1), plus possible principal repayments PR(t_n):

The cumulative total amortisation TA(t_n) of payment date t_n is defined by

• The effective capital EC(t_n) of payment date t_n is defined as the negative of the sum of all future cash flows discounted by the effective interest rate:     

    
   In order to check the calculation of the effective capital in Excel exports of the calculation analyser, the following equivalent recursive formula for the effective capital is useful:

• The smoothing effective interest rate EIRs is calculated exaxctly like the EIR – only all cash flows of premiums/discounts/charges/transaction costs are ignored in the calculation.
• Analogously, the smoothing effective capital ECs is calculated exactly like the EC – only the EIRs are used instead of the EIR.

The following annuity loan is considered:

Initially, there is also a charge of 5000 USD. Hence, the first cash flows for the deal are as follows:

Applying the calculation method described, the calculation of the amortised cost of the deal starts as follows: