Final answer:
Option (2), The par value of a bond is the total amount borrowed that the issuer agrees to pay the bondholder at maturity. It is not a quality rating or the purchase price of the bond.
Step-by-step explanation:
In financial terms, the par value of a bond is the amount the borrower agrees to pay back to the investor at maturity. It represents the face value or the total amount borrowed which the issuer of the bond is obligated to pay at the end of the bond's term, irrespective of the bond's market price. Coupon rate or interest rate is another aspect of a bond, which dictates the periodic interest payments.
Contrary to the par value, the purchase price of a bond can vary and may be different from its face value, depending on the current market interest rates and the bond's perceived risk by investors. This purchase price is also referred to as the bond's present value which is calculated by considering the face value, coupon rate, maturity date, and prevailing market interest rates.
Therefore, when asked 'The par value of a bond is?', the correct response is option 1) The total amount borrowed. The par value is not a rating of the quality of a bond (option 2), nor is it its purchase price (option 3).