Fair Value

Fair value

In the context of futures, the equilibrium price for futures contracts. Also called the theoretical futures price, which equals the spot price continuously compounded at the cost of carry rate for some time interval. More generally, fair value for any asset simply refers to the perception that it is neither underpriced (too cheap) nor overpriced (too expensive).

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Fair Market Value

A subjective estimate of what a willing buyer would pay a willing seller for a given asset, assuming both have a reasonable knowledge of the asset's worth. Fair market value is important in both law and accounting. In the former, it is often used in assessing damages as the result of a lawsuit. In the latter, determining the fair market value of an asset (e.g. after depreciation) is important to determining the amount of tax owed on it.

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Fair Value

What Does Fair Value Mean?

(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, 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.

Investopedia explains Fair Value

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. When futures trade above fair value, this means that traders are betting that the market index will go higher; the opposite is true if futures are trading below fair value.

Related Terms:
• Ask
• Face Value
• Market Value
• Par Value
• Premium