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What determines correct classification of bond investment

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Question

Assume you are advising the controller of Alpha Corp. (your employer). Alpha has never invested in stocks or bonds of other companies and therefore does not have a policy for such investments. Alpha is now planning to invest $20 million (a significant amount to Alpha) in bonds issued by an electric utility company (like LG&E for a local example).

The controller tells you that she has heard that there are three classifications for the bond investments -- held to maturity, available for sale, and trading. She asks you to explain (briefly) what determines the correct classification of the bond investment.

What do you need to know to determine which classification is appropriate? (The controller's time is very limited, so a long answer is not a good idea.)

Reference no: EM132380422

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