Question 3 The UK government has issued an index-linked gilt on 1.2.2020. The gilt has a coupon rate of 1.0% of nominal paid twice yearly in arrears. Upon maturity on 1.2.2025 a redemption payment of 105% of nominal will be made. There is a no time lag in indexing payments. The bond is indexed by reference to the Retail Prices Index and the relevant values are shown below. Year Feb April May | Aug Sep 2020 292.0 292.6 292.2 293.3 294.3 2021 296.0 301.1 301.9 307.4 308.6 2022 320.2 334.6 337.1 345.2 347.6 An investor purchases £10,000 nominal of the gilt on 1.2.2021 (after the coupon due on that date) and sells 15 months later. (a) Calculate the coupon payments that the investor receives. (b) Calculate the sale price of the bond if the real rate of return is 1.5% per annum. (c) Calculate the investor's vield assuming she bought the bond for £11.200.
Question 3 The UK government has issued an index-linked gilt on 1.2.2020. The gilt has a coupon rate of 1.0% of nominal paid twice yearly in arrears. Upon maturity on 1.2.2025 a redemption payment of 105% of nominal will be made. There is a no time lag in indexing payments. The bond is indexed by reference to the Retail Prices Index and the relevant values are shown below. Year Feb April May | Aug Sep 2020 292.0 292.6 292.2 293.3 294.3 2021 296.0 301.1 301.9 307.4 308.6 2022 320.2 334.6 337.1 345.2 347.6 An investor purchases £10,000 nominal of the gilt on 1.2.2021 (after the coupon due on that date) and sells 15 months later. (a) Calculate the coupon payments that the investor receives. (b) Calculate the sale price of the bond if the real rate of return is 1.5% per annum. (c) Calculate the investor's vield assuming she bought the bond for £11.200.
Advanced Engineering Mathematics
10th Edition
ISBN:9780470458365
Author:Erwin Kreyszig
Publisher:Erwin Kreyszig
Chapter2: Second-order Linear Odes
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Transcribed Image Text:Question 3
The UK government has issued an index-linked gilt on
1.2.2020. The gilt has a coupon rate of 1.0% of nominal paid twice yearly in arrears.
Upon maturity on 1.2.2025 a redemption payment of 105% of nominal will be made.
There is a no time lag in indexing payments. The bond is indexed by reference to the
Retail Prices Index and the relevant values are shown below.
Year Feb April May | Aug Sep
2020 292.0 292.6 292.2 293.3 294.3
2021 296.0 301.1 301.9 307.4 308.6
2022 320.2 334.6 337.1 345.2 347.6
An investor purchases £10,000 nominal of the gilt on 1.2.2021 (after the coupon due on
that date) and sells 15 months later.
(a) Calculate the coupon payments that the investor receives.
(b) Calculate the sale price of the bond if the real rate of return is 1.5% per annum.
(c) Calculate the investor's vield assuming she bought the bond for £11.200.
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