An Analyst Is Considering the Purchase of a Government of Canada

question 29

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 $9400.The analyst should recommend

• A)purchasing the bond because the purchase price is more than its present value and is therefore profitable.
• B)purchasing the bond because the purchase price is less than its present value and is therefore profitable.
• C)not purchasing the bond because the buyer could earn an additional $224 by investing the $9400 elsewhere.
• D)not purchasing the bond because the buyer could earn an additional $376 by investing the $9400 elsewhere.
• E)not purchasing the bond because the purchase price is less than its present value.