An Analyst Is Considering the Purchase of a Government of Canada

question 122

Multiple Choice

An analyst is considering the purchase of a Government of Canada bond that will pay its face value of $10 000 in one year's time,but pay no direct interest.The market interest rate is 4% and the bond is being offered for sale at a price of $9800.The analyst should recommend

• A)purchasing the bond because the buyer will earn a profit of $185.
• B)purchasing the bond because the bond price is equal to its present value.
• C)not purchasing the bond because the price is lower than its present value.
• D)not purchasing the bond because the buyer could earn an additional $192 by investing the $9800 elsewhere.
• E)not purchasing the bond because the buyer could earn an additional $392 by investing the $9800 elsewhere.

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