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 types of risk has the most effect on owners of fixed-income securities?

Liquidity risk

Business risk

Interest rate risk

Currency risk

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Verified step by step guidance

Understand the nature of fixed-income securities: Fixed-income securities, such as bonds, provide regular interest payments and return the principal at maturity. Their value is sensitive to changes in interest rates.

Define interest rate risk: Interest rate risk refers to the risk that the value of fixed-income securities will decrease due to an increase in market interest rates. This is because the fixed interest payments become less attractive compared to newly issued securities offering higher rates.

Compare interest rate risk to other risks: Liquidity risk refers to the difficulty of selling an asset quickly without a significant price reduction. Business risk pertains to the operational and financial risks of the issuing company. Currency risk involves fluctuations in exchange rates affecting the value of foreign investments. These risks are less directly impactful on fixed-income securities compared to interest rate risk.

Explain why interest rate risk has the most effect: Fixed-income securities are particularly sensitive to interest rate changes because their cash flows are fixed. When interest rates rise, the present value of these fixed cash flows decreases, leading to a decline in the market value of the securities.

Conclude the reasoning: Owners of fixed-income securities are most affected by interest rate risk because it directly impacts the value of their investments, making it the most significant risk compared to liquidity, business, or currency risks.