The private equity firm has asked you to price a 5 year GBP bullet bond

issue for them, with Price and Yield to Maturity, which might be issued

in order to finance the leveraged buyout.

You have the following set of zero coupon rates from UK Treasury

bonds, a Z-spread for United Utilities Group PLC of 200 bps over UK

Treasuries and a coupon rate of 5% would be appropriate to attract

investors.

Zero coupon rate 1 Year 0.43% 2 Year 0.44% 3 Year 0.70% 4 Year 0.80% 5 Year 0.95

You can assume that coupon payments are annual and that you are

pricing on a coupon day (no accrued interest) and you may ignore basis

conventions.

You should make your process and methodology clear with

explanations at each stage.

(hint: You might find it easier to use the PV and RATE functions in Excel)