Yield Curve For Different Terms Of Bonds & Government Bond Yields In Australia

Yield Curve

In the normal circumstances, a yield curve is the slope which represents about the return from the different term bonds. The yield curve depict that the short term instrument always have lower yield curve than the long term instrument because of the different yield in different term, the yield curve makes an upward slope. In 90% of the cases, yield curve shows the upward slope and thus is why it is also called the positive yield curve (Gorry, Hassett, Hubbard and Mathur, 2017).  

   An investor always expect much return from a long term instrument than the short term, instrument because of the time period and the fluctuations is the currency as well as time value of money. So, an organization offer more returns in long term instrument. The higher yield compensates the risk position of the investors and thus according to the need and demand of the investors, a better instrument could be chosen from the market. Upward slope in the yield curve represent the higher return from the instruments.

Part c:

The below given shape of yield curve represent the yield curve of different instrument with different time period. Through the evaluation on the graph, it has been measured that an upward slope could be seen the graph which represents that along with the maturity time period, the yield of an instrument has been improved. In case of the data of instrument from April, 2008, it has been found that the slope is showing downward slope because of the few internal and economical issues (Gürkaynak, Sack and Wright, 2007). However, in the rest of the yield line, it has been found that the yield level of the instrument would be improved. So, is an investors wants to get more return through investment than is suggested to invest for long term.

On the basis of evaluation, it has been found that the position of the return in the Australian market has been improved and the trend is also expressing about positive changes into the return. And thus, it is forecasted that the Australian economical position would also be better in near future.

Part d:

   The yield on 2 year bond and 1 year bond in the year of 2008 and 2009 has been calculated respectively, the calculations of both the years are as follows:

   Expectations theory tries to predict that what would be the return from short term investment in case of different investment rate. It estimates the future interest rate of an investment along with the different time period. It majorly explains that the interest rate of an instrument majorly depends on the time period of the investment (Bello, 2005). This theory brief that the investment could offer higher return, in case it is invested for the long term period.        

Expectations Theory

   On the basis of the below given chart, it has been found that the actual interest rate of year 1 is quite lower than the interest rate of 2 years. It briefs that the expectations theory express the correct point that along with the time, the interest rate of the bond would be improved. The graph further explains that the expected return in the year 2008n is quite lower than the year of 2009 because of the changes in the economical position and the inflation rate of the business (Brandt and Kavajecz, 2004). This explains that the expectations theory is validate in the real life as well. It expresses that the worth of the money get changes along with the time and due to which the investment rate get changes.                                  

Part f:

   Spread between Australian Government Bonds and NSW Treasury bonds has been calculated and graphed as well. It has been found that the position of Australian government bond is lower than the NSW. Because of that the graph has been presented in the negative values. It briefs the Australian government is also required to improve the return on the basis of the inflation rate.

Part a:

The fluctuations in the Qantas stock price and AMP share price has been calculated to identify the changes and the differences among the stock price of the company. Through the below graph, it has been found that the fluctuations in the Qantas stock price is higher and due to which the return from Qantas has been improved (Higgins, 2012). Currently, the pattern explains that the performance of Qantas is better.

Part b:

The above calculations express that the Amp performance is much better the QAN stock because of the better management of the risk and return.

Part c:

Calculation of beta:

The part c of the question explains that the beta factors of QAN and AMP is 1.17 and 0.610.           It express that bet factors of QAN are higher than AMP and it presents that the stock of QAN is more fluctuates than the index stock price.  

CAPM calculations:   

The CAPM calculations express that the required rate of return of QAN and AMP is 2.11% and 1.91% only which explains that the stock price of AMP is underpriced however, the QAN stock is overvalued.

Spreads between Australian Government Bonds and NSW Treasury Bonds

Introduction:

            The report paper presents about the two Australian stocks, Qantas and AMP. It represents about the stock price changes and the performance of both the stocks.  

Analysis:

    The fluctuations in the Qantas stock price and AMP share price has been calculated firstly to identify the changes and the differences among the stock price of the company. on the basis of the calculations, it has been found that the fluctuations in the Qantas stock price is higher and due to which the return from Qantas has been improved. Currently, the pattern explains that the performance of Qantas is better. Further, the risk and return position express that the Amp performance is much better the QAN stock because of the better management of the risk and return (Higgins, 2012).

The bet factors have been calculated and it has been founded that the beta factors of QAN and AMP is 1.17 and 0.610. It express that bet factors of QAN are higher than AMP and it presents that the stock of QAN is more fluctuates than the index stock price. Further, the CAPM calculations express that the required rate of return of QAN and AMP is 2.11% and 1.91% only which explains that the stock price of AMP is underpriced however, the QAN stock is overvalued.

Conclusion:

            To conclude, it has been found that the stock position of both the companies is average. Qantas’s market position is continuously improving whereas the Amp already has better marketplace. The risk and return position of AMP is much better and it is underpriceds as well. Thus it is recommended to the investors to invest in AMP stock.

References:

Bello, Z. Y. 2005. Socially responsible investing and portfolio diversification. Journal of Financial Research, 28(1), 41-57.

Brandt, M.W. and Kavajecz, K.A., 2004. Price discovery in the US Treasury market: The impact of orderflow and liquidity on the yield curve. The Journal of Finance, Vol. 59, no. 6, pp.2623-2654.

Brigham, E.F. and Ehrhardt, M.C., 2013. Financial management: Theory & practice. Cengage Learning.

Eberhartinger, E., Genest, N. and Lee, S., 2017. Practitioners’ Judgment and Deferred Tax Disclosure: A Case for Materiality. [online].

Gorry, A., Hassett, K.A., Hubbard, R.G. and Mathur, A., 2017. The response of deferred executive compensation to changes in tax rates. Journal of Public Economics, 151, pp.28-40.

Gürkaynak, R.S., Sack, B. and Wright, J.H., 2007. The US Treasury yield curve: 1961 to the present. Journal of monetary Economics, 54(8), pp.2291-2304.

Higgins, R.C., 2012. Analysis for financial management. McGraw-Hill/Irwin.

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