When market rates of interest rise after a fixed-rate security is purchased, the value of the now-below-market,fixed-interest payments declines, so the market value of the investment falls. On the other hand, if market ratesof interest fall after a fixed-rate security is purchased, the fixed-interest payments become relatively attractive,and the market value of the investment rises. Assuming these price changes are not viewed as giving rise to another-than-temporary impairment, how are they reflected in the investment account for a security classified asheld-to-maturity?
When market rates of interest rise after a fixed-rate security is purchased, the value of the now-below-market,fixed-interest payments declines, so the market value of the investment falls. On the other hand, if market ratesof interest fall after a fixed-rate security is purchased, the fixed-interest payments become relatively attractive,and the market value of the investment rises. Assuming these price changes are not viewed as giving rise to another-than-temporary impairment, how are they reflected in the investment account for a security classified asheld-to-maturity?
Chapter1: Financial Statements And Business Decisions
Section: Chapter Questions
Problem 1Q
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When market rates of interest rise after a fixed-rate security is purchased, the value of the now-below-market,
fixed-interest payments declines, so the market value of the investment falls. On the other hand, if market rates
of interest fall after a fixed-rate security is purchased, the fixed-interest payments become relatively attractive,
and the market value of the investment rises. Assuming these price changes are not viewed as giving rise to an
other-than-temporary impairment, how are they reflected in the investment account for a security classified as
held-to-maturity?
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