If a portfolio manager had to estimate the fair value of illiquid mortgage-backed securities,which of the following would he/she most likely identify as the level of inputs to determine this?
A) Level 1.
B) Level 2.
C) Level 3.
D) None of these.

Question

Quizplus · Accepted Answer

Level 3 inputs are used when determining the fair value of illiquid securities, as these securities have no active market and require significant judgement and estimation to value them. Level 1 and Level 2 inputs are typically used for more liquid securities that have an active market with observable prices. Therefore, the most appropriate level of inputs for determining the fair value of illiquid mortgage-backed securities would be Level 3.

If a Portfolio Manager Had to Estimate the Fair Value