Sprott Physical Silver Trust Notes to the Annual Financial Statements  December 31, 2014 7. Fair Value Measurements 8. Unitholders’ Capital Net Asset Value As at December 31, 2014 and 2013, due to the short- term nature of financial assets and financial liabilities recorded at cost, it is assumed that  the carrying amount of those instruments approximates their fair value. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy,  described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: Silver bullion is measured at fair value on a recurring basis. The fair value measurement of silver falls within Level 1 of the hierarchy, and is  based on published price quotations. The Trust is authorized to issue an unlimited number of redeemable, transferable Trust Units in one or more classes and series of Units. The  Trust’s capital is represented by the issued, redeemable, transferable Trust units. Quantitative information about the Trust’s capital is provided  in the statement of changes in equity. Under the Trust Agreement, Units may be redeemed at the option of the unitholder on a monthly basis  for physical silver bullion or cash. Units redeemed for physical silver bullion will be entitled to a redemption price equal to 100% of the NAV  of the redeemed Units on the last business day of the month in which the redemption request is processed. A unitholder redeeming Units for  physical silver bullion will be responsible for expenses in connection with effecting the redemption and applicable delivery expenses,  including the handling of the notice of redemption, the delivery of the physical silver bullion for Units that are being redeemed and the  applicable silver storage in-and-out fees. Units redeemed for cash will be entitled to a redemption price equal to 95% of the lesser of (i) the  volume-weighted average trading price of the Units traded on the NYSE Arca, or, if trading has been suspended on the NYSE Arca, on the  TSX for the last five business days of the month in which the redemption request is processed and (ii) the NAV of the redeemed Units as of  4:00 p.m., Eastern Standard time, on the last business day of the month in which the redemption request is processed. When Units are redeemed and cancelled and the cost of such Units is either above or below their stated or assigned value, the unitholders’  capital is reduced by an amount equal to the stated or assigned value of the Units. The difference between the redemption price and the stated  or assigned values of the Units is allocated to the Unit premiums and reserves account (equal to the 5% reduction to the redemption price for  Units redeemed for cash as described above) and the Retained earnings account based on the allocated portion attributable to the redemption.  For the year ended December 31, 2014, the Trust issued no Units (December 31, 2013: no Units) and redeemed 5,065 Units (December 31,  2013: 1,917 Units). Net Asset Value (“NAV”) is defined as the Trust’s net assets (fair value of total assets less fair value of total liabilities, excluding all liabilities  represented by outstanding Units, if any) calculated using the value of physical silver bullion based on the end-of-day price provided by a  widely recognized pricing service. • Level 1 – Quoted (unadjusted) market prices in active markets for identical assets or liabilities • Level 2 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or  indirectly observable • Level 3 – Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable 18