On page 127 in CFAI text, how is the unrealized gain of 53K (for HFT) is calculated? Shouldnt it be FV at end of yr - beg value = 350,000 -300,000 = 50,000? also from part 2, i dont understand the gain of 55K (for AFS), i think it should be FV - original cost = 352,000 - 300,000 = 52,000? finally, in Schweser eg on same topic, it recognises coupon payments for HFT an AFS in Income Stat, whereas CFAI eg is recogninzing interest as (mrkt interst * carrying value) ?
On page 127 in CFAI text, how is the unrealized gain of 53K (for HFT) is calculated? Shouldnt it be FV at end of yr - beg value = 350,000 -300,000 = 50,000? 350-297=55 also from part 2, i dont understand the gain of 55K (for AFS), i think it should be FV - original cost = 352,000 - 300,000 = 52,000? 352-297=55 finally, in Schweser eg on same topic, it recognises coupon payments for HFT an AFS in Income Stat, whereas CFAI eg is recogninzing interest as (mrkt interst * carrying value) ? for this one - CFAI is right. There will be an Amortization of Bond Premium/Discount which would be on the Income statement. (These would not exist if the Interest rate is not different from the Coupon Rate at the time of establishment of the bond).
check errata as I know there were revisions to this question last year
I gusess the Schewers eg is wrong when it comes to calcualting unrealized gain for HFT and recognizing the interest payments on Income Stat…I’ll stick to CFAI…Thanks
CPK: I dont think that for HFT/AFS we calculate the unrealized gain as = FV - Carrying value, the 297 as you mentioned above is the amortized cost for HTM investment (aplicable to HTM only). My understanding is that for HFT, unrealized gain = FV - Original cost = 350,000 -300,000 = 50,000? and similarly for part 2, AFS: FV - Original cost = 352,000 - 300,000 = 52, 000?
Unrealized gain = FV - Carrying Value that is correct. so 350-297=53. This had been provided as an erratum on 2010 curriculum later, and probably is correctly reflected in the books now. If the security were sold for 352 now - 352 - 350 (Sale Value-FMV) = 2 is the Realized Gain. The Unrealized gain is the difference between FMV and the Carrying Value.
Thanks CPK, in case the HFT is an equity investment instead of debt , then Unrealized gain = FMV - Original cost = 350,000 - 300,000?
The $53K unrealized gain come from taking the market value of the debt security $350,000 minus the carrying (amortized) value of the debt security $297,000. The amortization reflects that a premium was paid for the debt security, and reflects the convergence of carry value to par value as time approach maturity date.