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Am stuck kindly help me The British Government wishes to issue a new fixed-interest stock with a 25-year term, which will pay half-yearly coupons (payable

Am stuck kindly help me

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The British Government wishes to issue a new fixed-interest stock with a 25-year term, which will pay half-yearly coupons (payable in arrears) and will be redeemable at par. The Bank of England has advised the government that future interest rates (expressed as nominal rates convertible half-yearly) can be assumed to be 7% pa over each of the next 5 years, 8% pa over each of the following 10 years and 812% pa thereafter. (i) Assuming the government wishes to issue the new bond at a price of $100% calculate the coupon rate that should be chosen for the bond. (Quote your answer to the nearest '4%.) [4] (ii) After the coupon has been fixed at this level, an investor agrees a forward contract to buy the security in four years' time, immediately after the coupon payment then due. Calculate the forward price based on a "risk-free" rate of return equal to the interest rates advised by the Bank of England. Assume there is no arbitrage. [5] [Total 9]At 1 July 2004, an investor has a liability of (20,000 to be paid on 1 January 2008 and a liability of E18,000 to be paid on 1 July 2010. The investor currently holds assets with a present value equal to the present value of the liabilities. The investor wishes to immunise its position by investing in two zero coupon bonds with outstanding terms of four years and seven years. Determine whether or not this is possible assuming an effective interest rate of 10% per annum. [6]A fund must make payments of $50,000 at the end of the sixth and eighth years. Show that, if interest rates are currently 7% pa at all durations, immunisation to small changes in interest rates can be achieved by holding an appropriately chosen combination of a 5- year zero-coupon bond and a 10-year zero-coupon bond

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