continueinperpetuityandearn2%lessthanthereturnonthe
market index also in perpetuity.
Ona percent basis,the discountrepresents16.67% of the
marketvalueoftheinvestments.Ifyouassumethatthefund
willeitherbeliquidatedorbeginearningtheexpectedreturn
at a point in the future—say 10 years from now—the
expected discount will become smaller.
HOLDINGS IN OTHER FIRMS
In this category, we consider a broader category of
nonoperating assets, which include holdings in other
companies,publicaswellasprivate.Webeginbylookingat
thedifferencesinaccountingtreatmentofdifferentholdings
andhowthistreatmentcanaffectthewaytheyarereportedin
financial statements.
Accounting Treatment
Thewayinwhichcrossholdingsarevalueddependsonthe
waytheinvestmentiscategorizedandthemotivebehindthe
investment.Ingeneral,aninvestmentinanotherfirmcanbe
categorized as a minority passive investment, a minority,
activeinvestment;or amajorityactiveinvestment,and the
accounting rules vary depending on the categorization.
Minority Passive Investments