Consider a Government of Canada bond with a face value of $1000, and a present value of $925. If this bond is offered for sale at $960, then
A) the excess demand for the bond at $960 will drive the price up to the face value of the bond.
B) the equilibrium market price of this bond has been achieved.
C) the lack of demand for this bond will drive the price down until it reaches its equilibrium market price of $925.
D) individuals will purchase the bond at the offer price which will drive the market rate of interest down.
E) individuals will purchase the bond at the offer price which will drive the market rate of interest up.
Correct Answer:
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