The gross yield to redemption on government stocks (gilts) are as follows:
Treasury 8.5% 2000
Exchequer 10.5% 2005
Treasury 8% 2015
(a) Examine the shape of the yield curve for gilts, based upon the information above, which you should use to construct the curve.
(b) Explain the meaning of the term ‘gilts’ and the relevance of yield curves to the private investor.