A new index-linked gilt is issued on 1.1.2019. The gilt has a coupon rate of 0.25% of nominal paid twice yearly in arrears and the bond will mature in 25 years time at 110% of indexed nominal. 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. April July 2018 276.0 279.7 | 281.7 284.5 2019 | 283.0 | 288.2 | 289.5 | 290.4 Year Jan Oct 2020 290.6 292.6 294.2 Calculate the investor's yield assuming he bought the bond for £850.55 on 1.1.2019.

A new index-linked gilt is issued on 1.1.2019. The gilt has a coupon rate of 0.25% of nominal paid twice yearly in arrears and the bond will mature in 25 years time at 110% of indexed nominal. 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. April July 2018 276.0 279.7 | 281.7 284.5 2019 | 283.0 | 288.2 | 289.5 | 290.4 Year Jan Oct 2020 290.6 292.6 294.2 Calculate the investor's yield assuming he bought the bond for £850.55 on 1.1.2019.

Intermediate Financial Management (MindTap Course List)

13th Edition

ISBN:9781337395083

Author:Eugene F. Brigham, Phillip R. Daves

Publisher:Eugene F. Brigham, Phillip R. Daves

Chapter4: Bond Valuation

Section: Chapter Questions

Problem 8P

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