An inflation-linked bond of $5,000 nominal redeemable at par is priced at a gross of inflation...

 

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An inflation-linked bond of $5,000 nominal redeemable at par is priced at a gross of inflation nominal redemption yield of 8.2% per annum convertible quarterly. Coupons of 4.8% per annum are payable half-yearly for 40 years. Future inflation is assumed to be 2.6% per annum for the first 15 years and 4.5% per annum from year 16 onwards. Coupon and redemption payments are indexed to inflation. Find the price of the bond. An inflation-linked bond of $5,000 nominal redeemable at par is priced at a gross of inflation nominal redemption yield of 8.2% per annum convertible quarterly. Coupons of 4.8% per annum are payable half-yearly for 40 years. Future inflation is assumed to be 2.6% per annum for the first 15 years and 4.5% per annum from year 16 onwards. Coupon and redemption payments are indexed to inflation. Find the price of the bond.

Answer rating: 100% (QA)

To calculate the price of the inflationlinked bond we need to discount the future cash flows taking into account the inflation adjustments and the nom... View the full answer