Which statement best describes the valuation of securities by the manager?

• A. Par value and Market value
• B. Par value and Book value
• C. Market value and Cost
• D. Book value and Cost

Answer: (A)

When valuing securities, two figures matter: par value and market value. Par value is the security’s face amount—the amount that will be repaid at maturity for a bond or the stated value on stock—and it’s used for recording the contractual principal on the books. Market value is what the security would fetch if sold today, reflecting current interest rates, credit risk, and supply/demand. The manager uses both: par value to record the security’s face amount, and market value to gauge the portfolio’s current worth and liquidity. Cost or book value are historical and don’t show current worth, so they aren’t the basis for the present valuation. For example, a bond with a par value of 1,000 might have a market value of 1,050 today; the par value shows the principal, while the market value shows what the investment is worth right now.