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

If you wish to create a portfolio of stocks to reduce your investment risk, which of the following strategies is most effective?

Invest only in stocks from the same industry.

Invest all your funds in a single high-performing stock.

Invest in stocks with the highest recent returns regardless of industry.

Invest in a variety of stocks from different industries and sectors.

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Verified step by step guidance

Understand the concept of diversification: Diversification is a risk management strategy that involves spreading investments across various financial assets, industries, or sectors to reduce exposure to any single asset or risk.

Analyze why investing in stocks from the same industry is not effective: Stocks within the same industry are likely to be affected by similar economic, regulatory, or market conditions, which increases the risk of portfolio losses if that industry faces challenges.

Evaluate the risk of investing all funds in a single high-performing stock: While a single stock may show high returns temporarily, it exposes the investor to significant risk if the stock's performance declines due to company-specific issues or market volatility.

Consider the limitation of investing in stocks with the highest recent returns: High recent returns do not guarantee future performance, and focusing solely on past returns without considering diversification can lead to increased risk.

Conclude that investing in a variety of stocks from different industries and sectors is the most effective strategy: This approach reduces the impact of poor performance in any single industry or sector, thereby lowering overall investment risk and increasing the potential for stable returns.