INTERMEDIATE ACCOUNTING ACCESS 540 DAY
10th Edition
ISBN: 9781264706327
Author: SPICELAND
Publisher: MCG
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Chapter 12, Problem 12.2Q
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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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. How would that drop in fair value be reflected in the investment account for a security classified as HTM? Would your answer change if the drop in fair value was due to worsened financial conditions at the investee?
In general, would a falling rate of market interest cause the price of an MPT security to increase or decrease? Would the increase or decrease be greater if the security was issued at a discount? Would an increase in prepayment be likely or unlikely? Describe with an example.
Chapter 12 Solutions
INTERMEDIATE ACCOUNTING ACCESS 540 DAY
Ch. 12 - All investments in debt securities are classified...Ch. 12 - When market rates of interest rise after a...Ch. 12 - Does GAAP distinguish between fair values that are...Ch. 12 - When a debt investment is acquired to be held for...Ch. 12 - Prob. 12.5QCh. 12 - What is comprehensive income? Its composition...Ch. 12 - Why are holding gains and losses treated...Ch. 12 - Prob. 12.8QCh. 12 - Prob. 12.9QCh. 12 - Prob. 12.10Q
Ch. 12 - Under IFRS No. 9, which reporting categories are...Ch. 12 - Prob. 12.12QCh. 12 - Do U.S. GAAP and IFRS differ in the amount of...Ch. 12 - Under what circumstances is the equity method used...Ch. 12 - The equity method has been referred to as a...Ch. 12 - In the application of the equity method, how...Ch. 12 - Prob. 12.17QCh. 12 - Prob. 12.18QCh. 12 - Prob. 12.19QCh. 12 - How does IFRS differ from U.S. GAAP with respect...Ch. 12 - What is the effect of a company electing the fair...Ch. 12 - Define a financial instrument. Provide three...Ch. 12 - Some financial instruments are called derivatives....Ch. 12 - (Based on Appendix 12A) Northwest Carburetor...Ch. 12 - Prob. 12.25QCh. 12 - Prob. 12.26QCh. 12 - (Based on Appendix 12B) Reporting an investment at...Ch. 12 - Prob. 12.28QCh. 12 - Prob. 12.17BECh. 12 - Prob. 12.18BECh. 12 - Prob. 12.20BECh. 12 - Prob. 12.8ECh. 12 - Prob. 12.15PCh. 12 - Prob. 12.2DMPCh. 12 - Prob. 12.4DMPCh. 12 - Continuing Cases Target Case LO12-4, LO12-6...
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- In general, what effect would a reduction in risk have on “going-in” cap rates? What would this effect be if it occurred at the same time as an unexpected increase in demand? What would the effect on property values be?arrow_forwardIf a security is underpriced (i.e., intrinsic value > price), then what is the relationship between its market capitalization rate and its expected rate of return?arrow_forwardIf a financial asset has an expected return that is greater than what is necessary to compensate for its risk, what will bring the return back in line with equilibrium?arrow_forward
- Which of the following statements is false? A. A short sale allows investors to generate additional profits from a decline in a security’s price. B. One of underlying assumptions of technical analysis is that supply and demand are driven by both rational andirrational investor behavior. C. Investors get a margin call if the equity in a margin account rises above the required maintenance level. D. Technical analysis cannot modify price manipulations.arrow_forwardDo you think some investors may take advantage of the interest rate reduction, despite economic uncertainties?arrow_forwardWhat happens to the price and return of a security when investors recognize it as undervalued? Explain.arrow_forward
- The risk-adjusted discount rate reduces investment. True or false?arrow_forwardEven if behavioral biases do not affect equilibrium asset prices, why might it still be important for investors to be aware of them?arrow_forwardLet rf be the risk free rate of interest. E[r e ] be the expected return of some risky asset. Suppose that this risky asset pays out in states when the aggregate endowment is particularly low. There are three possibilities: ( a) E[r e ] > rf (b) E[r e ] = rf (c) E[r e ] < rf Which case applies to E[r e ] and why?arrow_forward
- When the quantity of a financial security supplied or demanded changes at every given interest rate in response to a change in a factor, this causes a shift in the supply or demand curve true or false ?arrow_forwardIf short - term rate - sensitivity asset - liability GAP is negative : a)Decrease in Interest Rate will result in increase in Net Interest Income b)Decrease in Interest Rate will result in decrease in Net Interest Income c)Profit will increase notwithstanding the movement in interest rate d)Profit will increase notwithstanding the movement in interest ratearrow_forwardAn abnormal return occurs: Only when the actual return is lower than the expected return. Only when the actual return is higher than the expected return. Only when the market value is higher than the intrinsic value. Only when capital appreciation exceeds the expected capital appreciation. Should not be discussed because the word “abnormal” might be hurtful to someone.arrow_forward
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