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 bonds would be likely to exhibit a greater degree of interest-rate risk?

A 3-year Treasury bill

A 10-year bond with a floating interest rate

A 5-year bond with a high coupon rate

A 20-year zero-coupon bond

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Understand the concept of interest-rate risk: Interest-rate risk refers to the risk that the value of a bond will decrease due to an increase in interest rates. Bonds with longer maturities and lower coupon rates are generally more sensitive to interest rate changes.

Analyze the characteristics of each bond option: A 3-year Treasury bill has a short maturity, which means it is less sensitive to interest rate changes. A 10-year bond with a floating interest rate adjusts its interest payments based on market rates, reducing its interest-rate risk. A 5-year bond with a high coupon rate provides regular interest payments, which also reduces sensitivity to interest rate changes.

Focus on the 20-year zero-coupon bond: Zero-coupon bonds do not pay periodic interest (coupons) and instead provide a single payment at maturity. This makes them more sensitive to interest rate changes because all of their value is tied to the distant future cash flow.

Consider the maturity length: Longer maturity bonds, such as the 20-year zero-coupon bond, are more affected by interest rate changes because the present value of their future cash flows is more sensitive to discount rate fluctuations.

Conclude that the 20-year zero-coupon bond exhibits the greatest degree of interest-rate risk due to its long maturity and lack of periodic coupon payments, making it highly sensitive to changes in interest rates.