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

The internal rate of return (IRR) is best described as:

The rate at which the market value of a security equals its book value.

The discount rate that makes the net present value (NPV) of an investment equal to zero.

The average annual return of an investment over its holding period.

The interest rate paid on a bond's face value.

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Verified step by step guidance

Understand the concept of Internal Rate of Return (IRR): IRR is a financial metric used to evaluate the profitability of an investment. It represents the discount rate at which the net present value (NPV) of all cash flows (both inflows and outflows) from an investment equals zero.

Recognize the relationship between IRR and NPV: The IRR is the specific discount rate that balances the present value of cash inflows with the present value of cash outflows, resulting in an NPV of zero. This is a critical concept in capital budgeting and investment analysis.

Compare the given options: Evaluate each option to determine which one aligns with the definition of IRR. For example, the IRR is not related to the market value equaling the book value, nor is it the average annual return or the interest rate paid on a bond's face value.

Identify the correct description: The correct answer is 'The discount rate that makes the net present value (NPV) of an investment equal to zero,' as this directly corresponds to the definition of IRR.

Apply this understanding in practice: When solving problems involving IRR, use the formula for NPV and set it equal to zero. Solve for the discount rate (IRR) using iterative methods or financial calculators.