(show all workings 60 marks)

This question relates to material covered in Topics 1-5. This question addresses the 1st, 2nd and 3rd subject learning outcomes.

(a) Bradley hates taking risk with his money; "I hate shares and property, I know a lot of people who have lost money in those investments". As a result he will only consider bank guaranteed investments. Bank guaranteed investments are returning 1%. Bradley has a marginal tax rate of 32.5% and pays medicare levy of 2%.

1. Assuming he pays tax at 32.5% plus medicare levy, on the income from his investment, is he preserving the real dollar value of his investment if inflation is 2.5% per annum? Show your workings to justify your answer. (2.5 marks)
2. When considering your calculations, how would you explain the benefits of risk to Bradley? (2.5 marks)