LCM is Lower of Cost or Market.
INTEREST RATE RISK results from increases and decreases in bond prices caused by changes in interest rates. When interest rates rise, the prices of bonds fall to compensate for the higher level of income demanded by investors. Bonds that carry less than the new market rate of interest must sell for lower prices. For example, if an investor purchases a bond at par value ($1,000) with a 7% coupon and interest rates rise to the point where the same bond later yields 9%, the bond will decline in price to the point where its yield to maturity is equivalent to the yield to maturity on a 9% current coupon. In other words, the investor will earn the prevailing market rate of 9%- by buying a bond priced at par with the 9% coupon, or by buying the bond at a discount to par with a 7% coupon.
CASH FREE BALANCE AMOUNT, in the general ledger, usually represents the net amount of Balance Forward plus Allocations plus Revenue minus Expenditures minus Encumbrances.
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