The gross yield to redemption on government stocks (gilts) are as follows:
Treasury 8.5% 2000 .......................... 7.00%
Exchequer 10.5% 2005 ....................... 6.70%
Treasury 8% 2015 ............................. 6.53%
(a) Examine the shape of the yield curve for gilts, based upon the information above, which you should use to construct the curve.
(b) Explain the meaning of the term 'gilts' and the relevance of yield curves to the private investor.