Question #2
Reading: Reading 11 Analysis of Financial Institutions
PDF File: Reading 11 Analysis of Financial Institutions.pdf
Page: 1
Status: Incorrect
Correct Answer: A
Your Answer: C
Question
When using the fair value hierarchy as defined by IFRS and US GAAP, a financial asset valuation performed by discounting future cash-flows at a discount rate would most likely be classified as a:
Answer Choices:
A. level 2 valuation
B. level 3 valuation
C. level 1 valuation
Explanation
Neither the future cash flows or the discount rate in a PV calculation are directly
observable, hence the valuation is level 3. Level 1 valuations are based on observed
quoted prices for identical assets. Level 2 valuations are observable but are not quoted
prices for identical assets, they may be prices for similar assets.