If interest rates have changed since the company's last valuation or if the company has entered into financial distress,book value is a reasonable approximation of market value.

Question

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In these two situations, the current price will differ from carrying value because either expected cash flows have changed or the discount rate has changed from its last valuation. In these situations, each bond should be valued separately by discounting promised cash flows at the appropriate yield to maturity.

If Interest Rates Have Changed Since the Company's Last Valuation