Question

1.

Given that government 5-year bonds have a current yield to maturity of 3%, with no other consideration, which of the following investments should you not invest in? Select all correct answers only. Assume all percentages given in this question are per annum.

Select one or more:

a. I would invest in all investments here.

b. Telstra shares paying a dividend yield of 3%.

c. Bank term deposit earning 2%.

d. Property lease returning 4%.

e. NAB bond which has a coupon of 3.5%.

2.

Which of the following currency movements would disadvantage a Chinese importer of wool from Australia? Select all correct answers only. Wool is priced in AUD.

Select one or more:

a. Appreciation of the AUD compared to the JPY.

b. Appreciation of the AUD compared to the CNY.

c. Appreciation of the CNY compared to the AUD.

d. Depreciation of the CNY compared to the AUD

e. Depreciation of the AUD compared to the CNY.

Answer 1

Question 1

The 5-year bonds issued by the government pays 3% per annum.

The government bonds are considered to be the least risky bonds or, generally, no risk bonds.

Now, the investor would be willing to invest in any other investment instrument that provides return more than 3% per annnum. Otherwise, he would be happy to invest in 5-year bonds issued by the government.

It has been provided tha bank term deposits provide return of 2% per annum.

This return is less than the return provided by 5-year bonds issued by the govenment. So, investors will not invest in bank term deposits.

Hence, the correct answer is the option (c).

Question 2

Importers tends to be at disadvantage when either domestic currency depreciates or foriegn currency appreciates.

So,

A Chinese importer importing wool from Australia would be at disadvantage if either CNY depreciates with respect to AUD or AUD appreciates with respect to CNY.

Hence, the correct answer is the option (b) and (d).