 # FSA: Calculating MVA

Example: Assume the following information for the Novak Corporation. 2006 2007 Dividends \$190 \$220 Interest 400 520 Realized gains (losses) 1,200 2,460 Investment in securities (at cost) 35,700 72,400 Investment in securities (at FMV) 38,200 76,800 Compute the MVA for 2006: \$38,200 − \$35,700 = \$2,500 Compute the MVA for 2007: \$76,800 − \$72,400 = \$4,400 Compute the change in MVA for 2007: \$4,400 − \$2,500 = \$1,900 = unrealized gains I’m just curious, why isn’t the 2007 unrealized gains = 4,400? i.e. why is it calculated as the “Change” for the two years?

Imagine a case where you bought some shares for \$1000. One year later, they are worth \$2000, and stay at that value indefinitely. If we put \$1000 in the accounts every year, we would be counting multiple times that one off gain. What we actually want to measure is the change in FMV *that year*.

oh i see… good point… so if we report 4,400 in 2007, then we’ll be counting 2,500 twice. Thanks Chrismaths.