Classifying securities. Firms must classify securities along two dimensions:

Purpose of investment: debt securities held to maturity, trading securities, or securities available for sale Length of expected holding period: cunent asset (Marketable Securities) or noncurrent asset (Investment in Securities)

Classify each of the securities below along each of these two dimensions.

a. A forest products company plans to construct a pulp-processing plant beginning in April of next year. It issues common stock for $200 million on December 10 of this year to help finance construction. The company invests this $200 million in U.S. government debt securities to generate income until it needs the cash for construction.

b. An electric utility has bonds payable outstanding for $100 million that mature in five years. The electric utility acquires U.S. government bonds that have a maturity value of $100 million in five years. The firm plans to use the proceeds from the government bonds to repay its own outstanding bonds.

c. A commercial bank acquires bonds of the state of New York to generate taxexempt interest revenue. The bank plans to sell the bonds when it needs cash for loans and other ongoing operating needs.

d. A pharmaceutical company acquires common stock of a biogenetic engineering company that conducts research in human growth hormones. The pharmaceutical company hopes the investment will lead to strategic alliances or joint ventures in the future.

e. A commercial bank maintains a department that regularly purchases and sells securities on stock exchanges around the world. This department acquires common stock of Toyota on the New York Stock Exchange because it thinks the market price does not fully reflect favorable news about Toyota.

f. A U.S. computer company has bonds payable outstanding that are denominated in French francs. The bonds mature in installments during the next five years. The computer company purchases a French winery's bonds, denominated in French francs, that mature in seven years. The computer company will sell a portion of the bonds of the French winery each year to obtain the French francs needed to repay its franc-denominated bonds.(Appendix)