An Analyst Is Considering the Purchase of a Government of Canada

question 57

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 percent and the bond is being offered for sale at a price of $9400. The analyst should recommend

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

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Definitions:

Financial Costs

The direct monetary expenses incurred by a company in producing, maintaining, and selling a product or service.

Transactional Functions

Activities involved in the buying and selling process that facilitate the exchange of goods and services between buyers and sellers.

Sorting

The process of organizing items into categories or groups according to specific criteria, often used in inventory and distribution management.

Transporting

The process of moving goods or materials from one location to another, crucial for supply chain and distribution operations.