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

Why is diversification a recommended investment strategy when investing in securities?

It guarantees higher returns regardless of market conditions.

It allows investors to avoid paying taxes on investment income.

It reduces the overall risk by spreading investments across different assets.

It eliminates all types of investment risk.

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Verified step by step guidance

Understand the concept of diversification: Diversification is an investment strategy that involves spreading investments across various financial instruments, industries, or other categories to reduce exposure to any single asset or risk.

Recognize the purpose of diversification: The primary goal is to reduce the overall risk of the investment portfolio. By holding a mix of assets, the negative performance of one asset can be offset by the positive performance of another.

Clarify the misconception about guarantees: Diversification does not guarantee higher returns or eliminate all risks. Instead, it helps manage and mitigate risks by avoiding over-reliance on a single investment.

Identify the correct benefit: Diversification reduces unsystematic risk (specific to a company or industry) by spreading investments across different assets, such as stocks, bonds, and other securities.

Conclude with the correct answer: The correct answer is that diversification reduces the overall risk by spreading investments across different assets, not that it guarantees returns, avoids taxes, or eliminates all risks.