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

An investor is comparing two bonds: Bond A has a higher coupon rate but a lower credit rating than Bond B. Which factor is most likely to explain why Bond A offers a higher yield than Bond B?

Bond A is issued by the government.

Bond B has a shorter maturity.

Bond A carries higher default risk.

Bond B pays interest less frequently.

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Verified step by step guidance

Understand the concept of bond yield: Bond yield is the return an investor earns on a bond, typically expressed as a percentage. It is influenced by factors such as coupon rate, credit rating, maturity, and default risk.

Analyze the relationship between credit rating and yield: Bonds with lower credit ratings are considered riskier because they have a higher likelihood of default. To compensate investors for taking on this risk, these bonds typically offer higher yields.

Examine the coupon rate: A higher coupon rate means the bond pays more interest to the investor. However, this alone does not explain the higher yield if the bond carries higher default risk.

Consider the default risk: Bond A has a lower credit rating, which indicates higher default risk. This is the primary reason why Bond A offers a higher yield compared to Bond B, as investors demand higher returns for taking on greater risk.

Evaluate other factors: While maturity, payment frequency, and issuer type can influence bond yields, the most relevant factor in this scenario is the higher default risk associated with Bond A.