Which of the following investments in debt securities would not normally be classified as long-term? A. Available-for-sale securities. B. Trading securities. C. Held-to-maturity securities. D. None of these answers Is it just me ? or this Q has something wrong Thanks
If you hate tricks and ambiguity, why are you trying to build a career in finance?
I would go with B. But Im not sure why A would not fit the bill. I remember A as a security that the Co. does not intend to hold to maturity.
JoeyDVivre Wrote: ------------------------------------------------------- > If you hate tricks and ambiguity, why are you > trying to build a career in finance? LOL ok that is not what I wanted to say … (note to self: read CFA Q carefully + think before talking … ) I got the same pb as CFABlackBelt I don’t understand why A is wrong …
B Trading Securities = Securities (debt or equity) held for short periods of time with the objective of generating profits from short term differences in price. i.e. Active and frequent buying and selling. Held-to-Maturity = Debt securities (only) that you have “positive intent and ability” to hold to maturity Available-for-sale securities = All other securities not classified as Trading or Held-to-Maturity. Note: Just b/c you don’t hold a 30 year bond to maturity doesn’t mean its a short term investment.
A is really a bucket for “other” so it’s not for trading and is not intended to be held to maturity. That can certainly include long-term investments.
ok got it Only held-to-maturity and available-for-sale securities are potential non-current investments. Trading securities are always considered to be current in nature, whereas held-to-maturity and available-for-sale securities may be classified as long-term should their maturity, or management’s intent dictate. Thanks a lot
Correct. And to clarify, the reason that bonds held-to-maturity are classified separately from bonds held long-term is because the financial statements do recognize changes in such bond’s market prices, which makes sense if the company actually does have both “positive intent and ability” (which includes remote default risk, etc.) to hold to maturity. Fluctuations in market prices should not affect the value of the such investments.