In linked deposits what do you exactly mean by time lag and y it occurs and in any given question in any given time period suppose 5yrs frmm 2000 so hw will i knw whn it will occur if time lag is given 1 year
A question on an index-linked bond will specify the length of the time lag to use, eg 3 months. The time lag relates to the inflation values used to calculate the coupon and redemption payments under an index-linked bond. eg. the coupon paid at time 5 would be calculated with reference to the inflation from time -0.25 to time 4.75 if there was a three-month (ie 0.25 years) lag. There is a worked example of the calculation in Section 3.4 of Chapter 12. The time lag exists in reality to allow the issuer of the bond sufficient time to calculate the coupon and redemption payments to make (ie it is an administrative issue).
