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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. Calculate the sale price of the bond if the real rate of return is 1.5% per annum

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. Calculate the sale price of the bond if the real rate of return is 1.5% per annum

ENGR.ECONOMIC ANALYSIS
ENGR.ECONOMIC ANALYSIS
14th Edition
ISBN:9780190931919
Author:NEWNAN
Publisher:NEWNAN
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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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.

Calculate the sale price of the bond if the real rate of return is 1.5% per annum

Year Feb April May Aug 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.
Transcribed Image Text:Year Feb April May Aug 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.
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