Question 5

Is it true that a Government of Canada security is risk-free? Which has greater interest rate risk, a 30-year Canada bond or a 30-year BB corporate bond? With regard to bid and ask prices on a Canada bond, is it possible for the bid price to be higher? Why or why not? Canada bid and ask quotes are sometimes given in terms of yields, so there would be a bid yield and an ask yield. Which do you think would be larger? Explain. A company is contemplating a long-term bond issue. It is debating whether or not to include a call provision. What are the benefits to the company from including a call provision? What are the costs? How do these answers change for a put provision