Gilt Yields
Flat yield
The gross annual coupon expressed as a percentage of the nominal amount
Gross coupon / nominal amount x 100
Assumes that the purchaser pays exactly the nominal value
The gilt is held for exactly one year from the date of purchase
Inflation is not considered
Interest yield
The gross annual coupon divided by the price that the investor actually pays whether in the primary or secondary market
Indicates the annual return based on the price actually paid
The price paid may be more (a premium) or less than (a discount to) the face value
Gross coupon / price paid x 100
Inflation is not considered
At maturity the purchaser would receive the principal amount of the gilt, which could be more or less than the purchase price
Gross redemption yield
The interest yield adjusted to take into account gains or losses to redemption
The total yield on a bond including coupon payments allowing for any gains or losses over the whole life of the bond up to and including final repayment
It is necessary to make the following assumptions
All coupon payments and the repayment of principal will be made promptly
Calculations are made without making any adjustments for tax liabilities
Dealing costs incurred by either the seller or the purchaser are not considered
Purpose is to show the total real return on a gilt, assuming that it is held to its final maturity
Interest yield - (gain or loss on purchase / number of years to maturity ) / price paid x100