Fair Value

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DEFINITION of 'Fair Value'

1. The estimated value of all assets and liabilities of an acquired company used to consolidate the financial statements of both companies.

2. In the futures market, fair value is the equilibrium price for a futures contract. This is equal to the spot price after taking into account compounded interest (and dividends lost because the investor owns the futures contract rather than the physical stocks) over a certain period of time.

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BREAKING DOWN 'Fair Value'

2. The "fair value" quoted on TV refers to the relationship between the futures contract on a market index and the actual value of the index. If the futures are above fair value then traders are betting the market index will go higher, the opposite is true if futures are below fair value.

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RELATED FAQS
  1. When is market to market accounting performed?

    Mark to market accounting is used for substantially all investments or financial instruments held on a corporation's balance ... Read Full Answer >>
  2. How is fair value calculated in the futures market?

    The fair value is the theoretical calculation of how a futures stock index contract should be valued considering the current ... Read Full Answer >>
  3. What is the difference between carrying value and fair value?

    Carrying value and fair value are two different accounting measures used to determine the value of a company's assets and ... Read Full Answer >>
  4. What are some examples of inherent risk?

    In financial and managerial accounting, inherent risk is defined as the possibility of incorrect or misleading information ... Read Full Answer >>
  5. Why are the fair value accounting rules controversial?

    The fair value of an asset is the amount for which it can be bought or sold between two agreeing parties. An important factor ... Read Full Answer >>
  6. What is the difference between macroeconomics and finance?

    Economics is a broad category that encompasses both macroeconomics and finance. Macroeconomics refers to behaviors of large ... Read Full Answer >>
  7. How does goodwill amortize?

    Per the Financial Accounting Standards Board (FASB) Statement 142, Accounting for Goodwill and Intangible Assets, goodwill ... Read Full Answer >>

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