Question 1. I’m considering investing in either Westpac Capital Notes 6 or Commonwealth Bank PERLS XI. Which do you consider will deliver the best returns over the five-year investment period?
Answer (by Paul Rickard): They both pay the same distribution of a grossed up 90-day bank bill plus 3.7% pa. Commonwealth Bank PERLS XI are a little shorter in term to the call date than the Westpac Capital Notes 6. If both investments are redeemed (as anticipated) on the mandatory redemption date, you will get your $100 back. There is no capital gain.
If I had a preference, I would probably opt for the Commonwealth Bank PERLS XI. That said, assuming no change in the credit quality of either of the Banks, the returns over five years should be the same.