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 best explains why historical rates of return are used to estimate expected returns for investments in securities?

Historical rates are required by law to be used in all financial reporting.

Historical rates provide a basis for predicting future performance by reflecting actual past outcomes.

Historical rates always guarantee identical future returns.

Historical rates eliminate all investment risk.

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Verified step by step guidance

Understand the question: The problem is asking why historical rates of return are used to estimate expected returns for investments in securities. This involves understanding the relationship between past performance and future expectations.

Clarify the concept of historical rates of return: Historical rates of return represent the actual performance of an investment over a specific period in the past. They are used as a reference point to estimate future returns because they reflect real-world outcomes.

Eliminate incorrect options: Analyze the provided options. For example, historical rates are not required by law for financial reporting, they do not guarantee identical future returns, and they do not eliminate investment risk. These statements are incorrect.

Focus on the correct reasoning: Historical rates are used because they provide a basis for predicting future performance. While they do not guarantee future results, they offer valuable insights into how an investment has performed under various conditions.

Conclude the reasoning: The correct answer is that historical rates provide a basis for predicting future performance by reflecting actual past outcomes. This is the most logical and accurate explanation for their use in estimating expected returns.