Table of contents

1. Introduction to Accounting1h 21m
2. Transaction Analysis1h 13m
3. Accrual Accounting Concepts2h 38m
4. Merchandising Operations2h 30m
5. Inventory1h 55m
6. Internal Controls and Reporting Cash1h 16m
7. Receivables and Investments3h 8m
8. Long Lived Assets5h 1m
9. Current Liabilities2h 19m
10. Time Value of Money1h 23m
- Time Value of Money Equations
  35m
- Using Time Value of Money Tables
  47m
11. Long Term Liabilities2h 45m
12. Stockholders' Equity2h 15m
13. Statement of Cash Flows2h 24m
14. Financial Statement Analysis5h 25m
15. GAAP vs IFRS56m

7. Receivables and Investments

Introduction to Investments in Securities

Financial Accounting

7. Receivables and Investments

Introduction to Investments in Securities

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Multiple Choice

In the context of investments in securities, why are line extensions (such as new classes or series of an existing security) more common than the introduction of entirely new types of financial products?

Line extensions are required by financial regulations, whereas new products are often prohibited.

Investors generally prefer unfamiliar products over established ones, making new products more attractive.

Line extensions are more expensive to develop and market than new products.

Line extensions leverage existing investor familiarity and reduce development risk compared to launching entirely new products.

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Verified step by step guidance

Understand the context of the problem: It discusses investments in securities and compares line extensions (new classes or series of an existing security) to entirely new types of financial products.

Recognize the key concept: Line extensions leverage existing investor familiarity and reduce development risk. This means investors are more likely to trust and invest in products they already recognize, which minimizes uncertainty.

Analyze the advantages of line extensions: They build on the reputation and track record of existing securities, making them less risky for both investors and issuers.

Contrast with new products: Developing entirely new financial products involves higher costs, regulatory hurdles, and the challenge of gaining investor trust, which increases development risk.

Conclude why line extensions are more common: By reducing development risk and leveraging familiarity, line extensions are a safer and more cost-effective strategy for issuers compared to introducing entirely new financial products.