Question

Which of the following is the greatest risk in holding a government of Canada bond. The bond has a face value of $10 000, matures in five years, has an annual 3% coupon which you purchased for $9900?

Select one: a. Secondary risk b. Primary risk c. Interest rate risk d. Default risk

Answer 1

The correct option is "C"

The Government of canada bonds is issued by their government and fully backed by them,The investor gets fixed source of income on the coupon rate,and get full face value at the time of maturity,Therefore, default risk is negligible.

The bonds are fully tradeable in the market but the market price of the bond keeps fluctuating according to the monetary policy, but the coupon rate of the bond remains fixed according to the contract, Therefore, The bond doesn't cover Interest rate risk.So, Correct option is "C"