A year ago, Jennie purchased two securities: 1) a 5.25% ten-year...

A year ago, Jennie purchased two securities:

1) a 5.25% ten-year semi-annual coupon bond newly issued by Qantas Airline (an Australian listed company) for $98.936. The bond has a face value of $100. She planned to hold the bond investment for one year. and,

2) a credit default swap contract (CDS) on her Qantas bond. She believed the CDS could minimize her interest rate risk on the bond investment. The yearly CDS premium is to be paid one year after CDS buyers' purchase date. The table below shows Qantas' CDS trading information for the CDS purchase date. The CDS bid and ask prices are a percentage of the bond's face value of $100, expressed in bps (100 bps = 1%). 

Date	CDS bid price	CDS ask price
One year ago	165 bps	185 bps

 

Today, Jennie sold the bond immediately after receiving the second coupon payment on the bond, which were quoted with a YTM of 6.2% at the time of the sale; and, paid the CDS premium on the same day. 

Required: [Word limit: 200, calculation does not attract word count]

1. What is the total realised return on Jennie's investments for this one-year period after considering investments in bond and CDS? Assume that the reinvestment return on the coupon is 2% p.a. compounded semi-annually. [show your working and do not round the intermediate calculation. Round your final answer to 2-decimals e.g., 0.01%]
2. Comment on Jennie's CDS strategy. [Hint: no calculation is required.]
3. If the bonds were callable and the market expects the Reserve Bank of Australia to raise interest rates soon, should Qantas' bondholders be concerned that the bonds will be redeemed early (i.e., before the bond's maturity date)? Answer and explain briefly.