Q1c) An Australian investor has AUD 500 000 to invest in either Australian or German shares over a period of three years. The following information is available: Expected annual dividend yield (Australia) 10% Expected annual dividend yield (Germany) 4% Expected annual capital appreciation rate (Australia) 12% Expected annual capital appreciation rate (Germany) 14% Expected annual rate of change of the exchange rate (AUD/EUR) 3%

(a) Assuming risk neutrality, what will the investor choose? (b) Calculate the minimum required rate of change in the exchange rate that will persuade the investor to choose German shares