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Financial instruments; Fair Value Measurment

5 important questions on Financial instruments; Fair Value Measurment

Explain the concept of equity risk

That means holders of the investment are not entitled to any fixed return on or of their investment, and receive the residual leftover after all liabilities have been settled.
If there are no profits after interest on liabilities and other contractual obligations have been paid then there are (probably) no dividends.

The inputs are assumptions that market participants would use when pricing the asset or liability. It is described like this because it prevents subjectivity. There are 3 levels and explain each level:

Level 1 : are observable inputs, they are genoteerde prijzen in actives markets, identieke assets and liabilities
Level 2 : other (in)directly observable inputs (vergelijkbare items)
Level 3 : unobservable inputs, there is no market data, only intern from the company

Hebben level 2 inputs meer prioriteit van level 3 inputs?

Yes

What means the SPPI test? (Solely Payments of Principal and Interest) Alleen betalen van hoofdsom en rente.

You can faill or pass the test. You can only pass the test if you have solely have payments of principal and interest (hoofdsombetalingen heeft en rente). Principal (hoofdsom) is just amount outstanding (uitstaande)

There are thee business models to take into considerations if the test of SPPI fails:

Hold to collect : company holds an debt instrument and it will collect the contractual cash flows.
Hold to collect and sell : collects contractual cash flows and includes occasional selling
Held for trading : active buying and selling and no intention to attract contractual cash flows.

The question on the page originate from the summary of the following study material:

International Financial Reporting Standards (IFRS)

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