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

Consider the following two mutually exclusive projects, Project A and Project B. Project A has an expected return of 8% and a risk level of low, while Project B has an expected return of 12% and a risk level of high. If an investor is risk-averse, which project is the investor most likely to choose?

Both projects, because diversification reduces risk.

Project A, because it has a lower risk.

Neither project, because mutually exclusive projects cannot be chosen.

Project B, because it has a higher expected return.

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Verified step by step guidance

Understand the concept of mutually exclusive projects: These are projects where the acceptance of one project excludes the acceptance of the other. In this case, the investor can only choose either Project A or Project B, not both.

Identify the key factors influencing the decision: The expected return and the risk level of each project. Project A has an expected return of 8% and low risk, while Project B has an expected return of 12% and high risk.

Consider the investor's risk preference: A risk-averse investor prefers lower risk even if it means accepting a lower return. This preference is crucial in determining the choice between the two projects.

Evaluate the options based on the investor's risk aversion: Since Project A has a lower risk compared to Project B, it aligns better with the preferences of a risk-averse investor.

Conclude the decision-making process: Based on the analysis, the investor is most likely to choose Project A due to its lower risk, even though it offers a lower expected return compared to Project B.