Suppose you work as a junior analyst in one large Australian mining firm

Junior analyst in one large Australian mining firm

Suppose you work as a junior analyst in one large Australian mining firm, which mainly export coal to Japan. The company has 100 million dollars to invest for up to 10 years in a financial instrument. Your boss, who knows a lot about finance, ask you to investigate the possibility to invest the full amount in one or more 10 year-bonds (for one or different countries) to diversify the risk of being totally exposed to the Japanese economy.

Your task is to write a report about 10 years government bonds (you can choice one or more of the countries/bonds in the data folder) and provide a recommendation for the company to invest (for example 30% in bond of country X and 20% on bonds of country Y, etc…). Other investments such as share will not be considered for the company. This is a great opportunity to test your understanding of this financial instrument and understand what factors you should consider for this investment.

For this assignment marks will be allocated in the following manner: Please use the following format to write your report (Rubrics are in brackets):

1. General introduction and characteristics of this investment (10-year government bonds). [20 marks]

2. Use the data in the file: 10 year bond.xls to construct a table of the correlation amongst each pair of all 10- year bond yield, described your results and investigates why some countries yield are very high correlated. [20 marks]

3. Given the objective of the firm to diversify from Japanese risk, recommend a portfolio investment for the next 10 years. Domestic and international economic context (e.g. interest rates, exchange rates economic growth and inflation) Diversification Risk/return Liquidity

General Information:

All data is available in the folder 10 year-bond. You do not have to buy any data for this assignment all data you need is either in the assignment folder or on the following websites: To learn how to estimate correlations please see: Simple correlation: Correlation matrix:

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