Question 2 [19 marks]. 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. Year Jan April | July Oct 2018 276.0 279.7 281.7 | 284.5 2019 283.0 288.2 289.5 290.4 2020 290.6 292.6 294.2 An investor purchases 1000 nominal of the gilt at issue and sells one year later after receiving two coupon payments. (a) Calculate the coupon payments that the investor receives. [6] (b) Calculate the sale price of the bond on 1.1.2020 if the real rate of return is 1.5% per annum. [6] (c) Calculate the investor's yield assuming he bought the bond for 850.55 on 1.1.2019. [7] Question 2 [19 marks]. 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. Year Jan April | July Oct 2018 276.0 279.7 281.7 | 284.5 2019 283.0 288.2 289.5 290.4 2020 290.6 292.6 294.2 An investor purchases 1000 nominal of the gilt at issue and sells one year later after receiving two coupon payments. (a) Calculate the coupon payments that the investor receives. [6] (b) Calculate the sale price of the bond on 1.1.2020 if the real rate of return is 1.5% per annum. [6] (c) Calculate the investor's yield assuming he bought the bond for 850.55 on 1.1.2019. [7]