At a glance, could it be:
1.5%per half year is a REAL rate.
2.5%per annum effective inflation.
Nominal rate (per half year) = (1.015)(1.025)^0.5 ....(1)
Note v in the question is at 1.5%per half year so 1 divided by (1), ie reciprocal, is the same as
v/(1.025)^0.5 ....(2)
First payment is 0.8 (133.8/110) per £100 nominal or £97.31 in (future) £ terms.
Discount this at nominal rate of (1.015)(1.025)^0.5 since it is a nominal £ term at the future date, ie multiply by v/(1.025)^0.5
And so on for other payments.
In theory it should be possible to work entirely in real terms, ie real coupons and redemption (in todays £terms) with real discount rates (although special treatment of first known payment may be needed). In practice, I haven't tried it but you could try it yourself to see if you can do it that way.
Last edited by a moderator: Mar 25, 2009