Multiple Choice
Under the topic of types of receivables, employer contributions made to a qualified plan are best classified as which of the following?
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7. Receivables and Investments
Types of Receivables
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How easily an investment can be exchanged for cash is known as:
A
Maturity
B
Profitability
C
Solvency
D
Liquidity
Verified step by step guidance1
Understand the concept of liquidity: Liquidity refers to how quickly and easily an asset or investment can be converted into cash without significantly affecting its value.
Differentiate liquidity from other financial terms: Maturity refers to the time until a financial instrument or investment reaches its due date. Profitability measures the ability of a business to generate earnings relative to its expenses. Solvency assesses a company's ability to meet its long-term financial obligations.
Recognize the importance of liquidity: Liquidity is crucial for businesses and investors as it ensures they can meet short-term obligations or take advantage of opportunities without delay.
Apply the concept to the question: The term that describes how easily an investment can be exchanged for cash is liquidity, as it directly relates to the ease of conversion into cash.
Review the correct answer: Based on the explanation, the correct answer to the question is 'Liquidity,' as it aligns with the definition provided.
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