Fair Value Hierarchy (Level 1, Level 2, Level 3)

This video discusses the 3-level fair value hierarchy. Assets or liabilities measured as fair value are classified into one of three levels based on the nature of the inputs that were used to determine the fair value. Level 1 fair values are based on observable inputs that reflect quoted prices for identical assets or liabilities in active markets (e.g., a share of common stock in a large publicly-traded company). Level 2 fair values are based on observable inputs that reflect quoted prices for similar assets or liabilities, or assets or liabilities that are traded in less active markets (e.g., a municipal bond). Level 2 fair values are not based on observable inputs, but are instead calculated using managerial inputs and assumptions.—
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