An Analyst Is Considering the Purchase of a Government of Canada

question 6

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 $9800. The analyst should recommend

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

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Definitions:

Mutual Gain

A situation or outcome in negotiation or trade where all parties involved benefit or achieve some level of advantage.

Tariffs

Tariffs are taxes imposed by a government on imported or exported goods.

Quotas

Government-imposed trade restrictions that limit the quantity or monetary value of goods that can be imported or exported during a specified time.

Comparative Advantage

The ability of a country to produce a particular good or service at a lower opportunity cost than its trading partners.