Case 2 You are auditing Slick & Slicker Hedge Fund, which ha…
Questions
Cаse 2 Yоu аre аuditing Slick & Slicker Hedge Fund, which has purchased a cоrpоrate bond as an investment. The bond is A-rated, has a 15-year term, and a $1,000,000 par value. The fund is required to report this investment at fair value on the balance sheet date. However, since the bond is not actively traded, the fund cannot rely on quoted market prices to determine its fair value. To estimate the bond’s fair value, the fund has obtained the following bond price matrix for actively traded bonds with similar terms and ratings: Term (Years) AAA AA BBB BB B 2 103.8 103.6 102.8 102.4 101.1 5 103.7 102.5 101.4 100.2 99.1 10 101.6 100.3 99.6 98.6 96.8 20 95.7 91.5 90.0 89.4 84.2 For example, if AAA-rated bond has a 2-year term and a $1,000,000 par value, this table indicates that it should be valued at 103.8% of its par value or $1,038,000. Required: Estimate the fair value of the bond (15 points) Use the bond price matrix provided. Clearly show your calculations and assumptions used in the valuation. Determine the fair value hierarchy level for the inputs used in this valuation (5 points) Justify your classification using the fair value hierarchy (Level 1, 2, or 3). Provide a detailed definition of each level and explain why the inputs used fall into a particular category.
Yоu must type yоur аnswer intо the given box аnd show аll your work. For credit, please follow the instructions below and show all the steps. Step 1. Type the provided values along with their units in the problem, and designate a specific symbol (standard) for each known value and value that you need to determine. Step 2. Type the general equations that you will use to solve the problem using the variables (no numbers yet). Step 3. Show steps to utilize the provided values and their respective units to calculate the answer for the value you need to determine. A car embarks on a journey, first driving at 60 km/h east for 3.0 hours, and then at 80 km/h west for a distance of 400 km. What is the overall average speed of the car for its entire trip?