Which of the following best describes a surety bond?

A surety bond serves as a financial guarantee that involves three distinct parties: the principal, the obligee, and the surety. In this arrangement, the principal is the party responsible for completing the obligation, commonly a contractor. The obligee is the entity that requires the bond, usually a project owner or government agency, seeking assurance that the principal will fulfill their commitments. The surety is the third party, typically an insurance company, that underwrites the bond and guarantees payment or performance if the principal defaults on their obligations.

This tripartite relationship is crucial because it establishes accountability, assuring the obligee that they will be compensated for any loss resulting from the principal's failure to perform as promised. The surety bond thus provides security and trust in various business and contractual arrangements, making option A the most accurate description of a surety bond.