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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Definitions:

Reworked Cost

The expenses associated with correcting defective products or redoing a production process to meet quality standards after the initial manufacturing effort.

Financial Advantage

A benefit in economic terms that positions an entity in a more favorable financial situation than others.

Surplus Material

Excess materials that are not required for current production needs and may be sold or reused in future projects.

Purchased Lots

Refers to parcels or quantities of goods acquired by a company, often used in reference to real estate or bulk purchases of inventory.