Canadian Securities Course (CSC) Practice Exam

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What is the purpose of a purchase fund related to bonds?

the interest rate for these GICs increases over the term.
a bond with an option allowing the bondholder to exchange the bond for a specified number of shares of common stock in the firm.
a short-term corporate money market security.
set up to retire a specific amount of bonds through purchases in the market, if they can be made at or below a stipulated price.

The correct answer is: set up to retire a specific amount of bonds through purchases in the market, if they can be made at or below a stipulated price.

A purchase fund related to bonds serves the purpose of retiring a specific amount of bonds through market purchases, as long as they can be acquired at or below a predetermined price. This is a strategic financial tool used by companies to manage their debt obligations by buying back outstanding bonds. Option A, B, and C are incorrect as they do not accurately explain the purpose of a purchase fund related to bonds. Option A describes a type of investment with increasing interest rates, option B describes a bond with a stock option, and option C describes a type of short-term security that is not related to bonds. These options are not relevant when discussing the purpose of a purchase fund related to bonds.