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

Which of the following is true about interest rate risk in relation to investments in debt securities?

Interest rate risk only affects equity securities, not debt securities.

Interest rate risk refers to the possibility that changes in market interest rates will affect the fair value of debt securities.

Interest rate risk can be completely eliminated by holding the security to maturity.

Interest rate risk increases the value of a bond when market interest rates rise.

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Verified step by step guidance

Understand the concept of interest rate risk: Interest rate risk refers to the possibility that changes in market interest rates will affect the fair value of debt securities. When market interest rates rise, the value of existing debt securities typically decreases, and vice versa.

Analyze the first statement: 'Interest rate risk only affects equity securities, not debt securities.' This is incorrect because interest rate risk specifically impacts debt securities, not equity securities.

Evaluate the second statement: 'Interest rate risk refers to the possibility that changes in market interest rates will affect the fair value of debt securities.' This is correct and aligns with the definition of interest rate risk.

Review the third statement: 'Interest rate risk can be completely eliminated by holding the security to maturity.' This is partially true because holding a debt security to maturity avoids fair value fluctuations, but it does not eliminate the risk of opportunity cost or inflation impacts.

Assess the fourth statement: 'Interest rate risk increases the value of a bond when market interest rates rise.' This is incorrect because rising market interest rates decrease the value of existing bonds due to their lower relative yield.