For the following investments identify whether they are:

1.

Trading securities

2.

Available-for-sale securities

3.

Held-to-maturity securities

Each case is independent of the other.

(a)

Purchase bonds maturing in 20 years. The company intends to use the cash flow generated by the interest payments on

the bond to provide employee bonuses.

(b)

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increase substantially over the next couple of months.

(c)

An investment grade bond that matures in 8 years was purchased. The company will probably hold the bonds until

they mature at which time the proceeds will be used to retire maturing debt.

(d)

Five-year bonds of a troubled company were purchased this year for substantially below par value. The bonds mature

in 2 months.

(e)

Excess cash was used to purchase preferred stock. The preferred stock may need to be sold within the next year if a

planned expansion is completed.

(f)

15% of the outstanding stock of another company was purchased last year. The company is considering purchasing

another 20% of the company.

Answer rating: 100% (QA)

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