Assignment 1

Guidelines

Submission Date: By 23:55 PM  Sunday  27th March 2022. Please follow the submission link provided on the module page.

The written work should be submitted as a group document including all five tasks. The first step is to distribute the five tasks among the group members. Once decided, the individual is responsible for completing the task. Each individual receives a mark based on the quality of their own work, not the overall quality of the group submission. The written submission should include a joint introduction detailing who carried out which task.

Students across the different groups undertaking the same task should not collaborate. Discussion of the tasks should be group-based. Evidence of students submitting the same written work will be deemed as being in breach of academic rules regarding plagiarism.

Some elements of each task focus on calculations and do not specify a word-count. However, you should explain the process by which you solve the problem and summarise your results.

You should read widely on the topics included in your task and not assume that the lecture and seminar materials are wholly sufficient. The discussion elements should show evidence of wider reading by use of references.

Task 4

The table below lists the terms to maturity, the coupon rates, coupon payment dates and yields to maturity for three UK government bonds at the close of business on 7th January 2018.  

Gilts Prices Close of Business 7th January 2018
Maturity DateCoupon RateCoupon Payment DatesYield to Maturity
07/04/20223.75%7th April, 7th October0.784735%
20/08/20271.70%20th February, 20th August1.394042%
07/06/20354.00%7th June, 7th December1.868424%

The coupon rates are quoted as annual rates. But UK government bonds divide the annual coupon into two equal instalments payable every six months.

  1. Work out the time periods to maturity, the periodic coupons and the periodic yields for each of the three bonds. Use the information to calculate the clean price of each bond. Your mathematical workings should be clearly outlined in your written presentation.

(40 marks)

  • Calculate the accrued interest and dirty prices for each bond at the close of business on 7th January 2018. Your mathematical workings should be clearly outlined in your written presentation.

(25 marks)

  • UK government bonds are widely considered to be risk-free investments. Explain what is meant by ‘risk-free’ in this context and discuss the notion that they are, nevertheless, exposed to market risk. The word count for this element should be 250-350 words.

(35 marks)

   (Total marks 100)

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