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Explain Why SAFA Bonds Are Risk Free

Question

The rate of return for an Australian Commonwealth Government Treasury Bond is given as 4% per annum. The yearly return for the Australian share market is given as 12%. Suppose a listed company has a beta value of 0.5.

(a) The Government of South Australia issues State Government Treasury Bonds using its financing authority, the South Australian Government Financing Authority (SAFA). Explain why these bonds are not considered to be risk-free.

(b) Explain what are bond ratings, and how they affect investor returns.

(c) Explain what are junk bonds.

 

Summary

The question belongs to Finance and it discusses about SAFA bonds and why the bonds are considered risk-free and explains what are bond ratings and junk bonds.

Total Word Count 214

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