Q1: The chart on the next page shows the yield on Australian government bonds with a ten-year maturity. It shows the yield has trended downward from its high of over 16% in the early 1980s to its present-day low of 0.75%

(a) Is the decline in yield relevant to investment?

(b) What might be some of the reasons the yield has trended downward from its high of over 16% in the early 1980s to its present-day low of 0.75%? (c) What are the implications, if any, for housing prices in Australia? For instance, does the very low yield today mean that housing prices are unlikely to rise in future?

GACGB10 1mond Australia 10Y Bond Yield (percent) 0.75 16.000 14.000 12.000 10.000 8.000 6.000 4.000 2.000 0.75 1988 1996 2004 2012 1972 1980 1Y 5Y 10YAll 2020 % num dif