Government Bonds Calculator UK

UK Government Bonds (Gilts) Formula:

\[ P = \sum_{t=1}^{n} \frac{C}{(1 + r)^t} + \frac{F}{(1 + r)^n} \]

Face Value (F):

GBP

Coupon Rate:

Yield to Maturity:

Years to Maturity:

years

Payments per Year (m):

Bond Price (P):

Unit Converter ▲

Unit Converter ▼

From:	To:

1. What is the UK Government Bonds Calculator?

The UK Government Bonds Calculator estimates the price of gilts (UK government bonds) using the standard bond pricing formula. It calculates the present value of future coupon payments and the face value repayment at maturity.

2. How Does the Calculator Work?

The calculator uses the bond pricing formula:

\[ P = \sum_{t=1}^{n} \frac{C}{(1 + r)^t} + \frac{F}{(1 + r)^n} \]

Where:

\( P \) — Bond price (GBP)
\( C \) — Periodic coupon payment = (coupon rate × F) ÷ m (GBP)
\( r \) — Periodic yield to maturity = yield ÷ m (decimal)
\( t \) — Period number (unitless)
\( F \) — Face value (GBP)
\( n \) — Total number of periods = years × m (unitless)
\( m \) — Payments per year (unitless)

Explanation: The formula calculates the present value of all future cash flows (coupon payments and face value repayment) discounted at the required yield rate.

3. Importance of Bond Pricing

Details: Accurate bond pricing is essential for investors, portfolio managers, and financial institutions to determine fair value, assess investment opportunities, and manage interest rate risk in gilt investments.

4. Using the Calculator

Tips: Enter face value in GBP, coupon rate and yield as percentages, years to maturity, and select payment frequency. Typical gilt face value is £100, with semi-annual coupon payments common.

5. Frequently Asked Questions (FAQ)

Q1: What are UK government bonds called?
A: UK government bonds are known as gilts. They are debt securities issued by the UK government to finance public spending.

Q2: How do coupon payments work for gilts?
A: Gilts pay fixed coupon payments typically semi-annually. The coupon rate is expressed as a percentage of the face value.

Q3: What is yield to maturity?
A: Yield to maturity is the total return anticipated if the bond is held until it matures, considering all coupon payments and the face value repayment.

Q4: Why does bond price change with yield?
A: Bond prices move inversely with yields. When market interest rates rise, existing bonds with lower coupon rates become less attractive, causing their prices to fall.

Q5: Are gilts risk-free investments?
A: Gilts are considered very low risk as they are backed by the UK government, but they still carry interest rate risk and inflation risk.