Valuation: Securities are valued at what?

Valuation: Securities are valued at what?

• A. The value on the day the loss is discovered
• B. Face value
• C. Replacement cost
• D. Cost to repair

Answer: (A)

Securities are valued by their market value on the date the loss is discovered. This reflects the actual financial position of the insured when the claim is made, since market prices for stocks and bonds can fluctuate from day to day. Using the discovery date prevents later price swings from changing the indemnity and aligns the payout with the insured’s real, current loss. Face value isn’t the right measure because it ignores how the market actually prices securities. Replacement cost and cost to repair don’t apply to securities, since you don’t repair a stock or bond; you replace it with equivalent securities at their current market value.

Securities are valued by their market value on the date the loss is discovered. This reflects the actual financial position of the insured when the claim is made, since market prices for stocks and bonds can fluctuate from day to day. Using the discovery date prevents later price swings from changing the indemnity and aligns the payout with the insured’s real, current loss.

Face value isn’t the right measure because it ignores how the market actually prices securities. Replacement cost and cost to repair don’t apply to securities, since you don’t repair a stock or bond; you replace it with equivalent securities at their current market value.