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

Previous problemNext problem

Struggling with Financial Accounting?

Join thousands of students who trust us to help them ace their exams!Watch the first video

Multiple Choice

Which of the following methods for calculating the cost of equity ignores risk?

Capital Asset Pricing Model (CAPM)

Bond Yield Plus Risk Premium Method

Dividend Yield Method

Arbitrage Pricing Theory (APT)

Previous problemNext problem

Verified step by step guidance

Understand the concept of cost of equity: Cost of equity represents the return a company must offer investors to compensate them for the risk of investing in its equity. Different methods are used to calculate this, and some incorporate risk while others do not.

Review the Capital Asset Pricing Model (CAPM): CAPM calculates the cost of equity by considering the risk-free rate, the equity beta (which measures risk relative to the market), and the market risk premium. Since it explicitly incorporates risk, it does not ignore risk.

Examine the Bond Yield Plus Risk Premium Method: This method adds a risk premium to the yield of the company's bonds to estimate the cost of equity. It accounts for risk by including the risk premium, so it does not ignore risk.

Analyze the Dividend Yield Method: This method calculates the cost of equity by dividing the annual dividend per share by the current market price of the stock. It does not explicitly account for risk, as it focuses solely on the dividend yield, making it the method that ignores risk.

Consider Arbitrage Pricing Theory (APT): APT is a multi-factor model that calculates the cost of equity based on various risk factors. Since it incorporates risk factors, it does not ignore risk.