Let's do some calculations on an index linked gilt. Riley buys some index linked gilts with a principle value of a thousand pounds and a 4.125% coupon. The base RPI for this issue is 135.1. The reference price when it's time for the next interest payment is 137.3. How much is the interest payment that Riley will receive? I've typed down the base information here in the Excel sheet already, so we've just gotta figure out what the change in the RPI is during this period. And that's the reference RPI divided by the base RPI. So it looks like we have had inflation here about 1.628%.

The coupon rate is 4.125, but of course that is a semi-annual payment. So we divide that by 2 and now we can figure out our adjusted coupon payment because it's the change in RPI times the semi-annual coupon.

So the adjusted coupon is 2.096% and therefore, of course the interest payment is that percentage amount times the principle value.

Now this index linked bond has reached maturity when Riley's ILG matures. The reference RPI is 162.7. What does Riley receive when his bond matures? So in this case, we have to look at the reference RPI at maturity 162.7, divide that by the base RPI, which is the RPI level at the beginning times the original principle value value.

So at redemption, Riley gets 1204.3 plus his coupon.