The Equity Method of Accounting for a Share Investment Should

question 165

Multiple Choice

The equity method of accounting for a share investment should generally be used when the investor owns 20-50% of the investee's shares,because that level of share ownership:

• A) requires the investor to notify the government of any plans to acquire a controlling interest in the investee
• B) likely gives the investor significant influence over the investee
• C) usually indicates a plan to acquire a controlling interest
• D) means the investor has a controlling interest in the investee

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Definitions:

Duration

A measure of the sensitivity of a bond’s price to changes in interest rates, expressed as the weighted average time to receive the bond's cash flows.

Macaulay Duration

A measure of the weighted average time until a fixed income asset's cash flows are received, used to assess interest rate risk.

Yield

The earnings generated and realized on an investment over a particular period, expressed as a percentage of the investment’s cost, its current market value, or its face value.

Modified Duration

A measure of the sensitivity of a bond's price to changes in interest rates, adjusting for the bond's yield to maturity.