The private equity firm has asked you to price a 5 year GBP bullet bond issue fo
ID: 2763344 • Letter: T
Question
The private equity firm has asked you to price a 5 year GBP bullet bond issue for them, with Price and Yield to Maturity, which might be issued in order to finance the leveraged buyout.
You have the following set of zero coupon rates from UK Treasury bonds, a Z-spread for United Utilities Group PLC of 200 bps over UK Treasuries and a coupon rate of 5% would be appropriate to attract investors.
Zero coupon
rate
1 Year
0.43%
2 Year
0.44%
3 Year
0.70%
4 Year
0.80%
5 Year
0.95%
You can assume that coupon payments are annual and that you are pricing on a coupon day (no accrued interest) and you may ignore basis conventions.
You should make your process and methodology clear with explanations at each stage.
(hint: You might find it easier to use the PV and RATE functions in Excel)
Zero coupon
rate
1 Year
0.43%
2 Year
0.44%
3 Year
0.70%
4 Year
0.80%
5 Year
0.95%
Explanation / Answer
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