Week 4

Question 1

What are gilts?

Answer 1

Uk government treasury bonds

Question 2

Why might you want a gilt in your portfolio?

Answer 2

Low risk, fixed income and government backed

Question 3

What are the three different typers of gilts with a small description?

Answer 3

Conventional gilts- fixed interest rates and maturity

Index linked gilts- Interest rates and capital impacted by inflation

Undated gilts- No maturity date, can pay forever until government buys them back

Question 4

What is the relationship between interest rates and gilts?

Answer 4

If interest rates decrease, gilts go up

If interest rates increase, gilts go down

Question 5

Whats the three yield basics?

Answer 5

Yield means calculating what you earn to what you paid for it

Fixed interest payment is known as a coupon

Redemption yield is what you will get at the maturity if held to maturity.

Question 6

Describe three risks one might consider with gilts?

Answer 6

Interest rates, inflation (especially index linked gilts) and liquidity

Question 7

What are corporate bonds and why are they more risky than gilts?

Answer 7

Debt issued to raise money and they are more risky than gilts as they are not government backed.