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Analysis Case Solution

Q:1) Give a comparative analysis of the Canadian bond yield curve from the Bank of Canada and the United States bond yield curve from the U.S. Treasury

In the bond market, the investor usually purchases abound that gives the higher return on the investment. However, the economic condition pushes the market towards safer investment that leads to falling in the bond yield. Economic conditions include a higher rate of unemployment and slow economic growth or recession that might decrease the bond yield. If the interest rate increases, the price of the bond tend to fall or vice versa.

Moreover, the Canadian bond market is much risky than the United States bond market. However, the Canadian bond pays the less interest on bond maturity as compare to the United States market. It can be determined that the higher return on U.S bond leads to greater risk determine by the investor. Additionally, the U.S bond market is less fluctuated as compare to the Canadian bond market. The U.S economic condition is more stable than the Canadian economy.

On the other hand, the investor face more risk in the Canadian bond market as compare to the U.S market. The relationship between interest rate and price of the bond is inversely proportional to each other. However, if the interest rate increases the price of the bond tends to fall or the price of the bond rise if the interest rate fall.Furthermore, the Canadian economy is less stable than U.S economy. In like the same manner,the investor would purchase bond above the market price, in order to earn a higher return on the bond. However, if the investor purchase bond at par value equal to the market price, the yield of the bond is same as the market price of the bond. Furthermore, if the bond price above the market price, the bond is stated as premium bond. The price of the bond is much higher than the market price of the bond.

In another word, the investor would purchase praseodymium, so the investor earned higher interest than the market prevailing interest rates. Generally in the bond market, as the price of the bond rises, the bond yield tends to fall. However, if the price of the bond decreases, the yield of the bond increases. In such case, they are related to inversely proportional to each other.

Q:2) At the beginning of class, you identified you risk tolerance in a range from zero to ten (0 = no tolerance for risk; 10 = extremely risk tolerant).

The tolerance level indicates that the investor required a high return on the investment. The current risk tolerance level specifies that the investor would willingly to tolerate the risk associated with the stock that the investor held in the market. However, the investor would balance their portfolio in order to earn higher rate of return on the investment. The company stock pays interrelationship return on the investment,so in order to earn nonreturnable, the investor should purchase MS FT, NEVADA, and AMEN. Additionally, these stock pays relatively high return as well as the higher risk.

Analysis Case Solution

On the other hand, the investor would invest in AAA bonds in order to get nonreturnable. However, the AAA bonds give the higher return on the investment in the bond market. Whereas, the bond market is less risky as compare to the capital market. In such case, the investor would invest in the bond market in order to get higher return. However, the return of bond fluctuates as the change in the interest rate. If the interest rate is going to fall, the investor earns the higher return on the bond. In the same manner, if the interest rate is going to rise, the investor earn correlative return on the bond..................

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