hi, I was looking over the april 2010 exam paper and was unsure on Q2 (ii) the question is asking for the annual effective money yield and the solution has taken the equation of values using the calculations as in part (i) of the question, but the cashflows in part (i) have been adjusted for inflation therefore does this not make it the real yield as apposed to the money yield? thanks for your help in advance kind regards Salil
We have an index linked bond - therefore the money actually received (and calculated in part (i)) by the investor will be increased by an (out of date) inflation index. Real values use the correct inflation index and decrease the values. this would be another step in a question on index-linked bonds.
