Canadian Securities Course (CSC) Level 1 Practice Exam

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What is the present value of a bond?

The amount the issuer initially values the bond at
The amount of interest accrued on a bond
The amount an investor should pay today to invest in a security that offers a guaranteed sum of money on a specific date in the future.
The final value of a bond at maturity

The correct answer is: The amount an investor should pay today to invest in a security that offers a guaranteed sum of money on a specific date in the future.

The present value of a bond refers to the amount that an investor should pay today to invest in a security that guarantees a specific sum of money on a certain date in the future. This value is calculated by discounting the future cash flows (in the form of coupon payments and the principal amount at maturity) at an appropriate discount rate. The present value helps investors determine the fair price to pay for the bond based on the time value of money and the risk associated with the investment. The other options are incorrect because they do not accurately represent the concept of present value in the context of bond valuation.