Final answer:
One would prefer to purchase a bond when its current market price is less than its present value, as it implies the bond is undervalued compared to the expected future income, making it a good investment opportunity.
Step-by-step explanation:
In general, one would prefer to purchase a bond when its current market price is less than its present value. This is because the present value represents the total value of future expected cash flows discounted back to the present, using the current market interest rate. If you can purchase a bond for less than its present value, it suggests that you are getting a good deal, as the price you pay is lower than the value of the income you expect to receive from the bond. Moreover, the price of a bond is always the present value of a stream of future expected payments. If market interest rates have risen since the bond was issued, the new higher rates will make the current price of the bond less than its face value, providing the opportunity for an investor to buy the bond at a discount.