If a T-Bill Pays 5 Percent,which of the Following Investments

question 16

Multiple Choice

If a T-bill pays 5 percent,which of the following investments would not be chosen by a risk-averse investor?

• A) An asset that pays 10 percent with a probability of 0.60 or 2 percent with a probability of 0.40.
• B) An asset that pays 10 percent with a probability of 0.40 or 2 percent with a probability of 0.60.
• C) An asset that pays 10 percent with a probability of 0.20 or 3.75 percent with a probability of 0.80.
• D) An asset that pays 10 percent with a probability of 0.30 or 3.75 percent with a probability of 0.70.
• E) neither a nor b would be chosen.

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Definitions:

Financing Activities

Transactions related to changes in the equity and debt of an organization, including issuing shares, paying dividends, and borrowing funds.

Indirect and Direct Methods

Two approaches for preparing cash flow statements: the direct method reports major classes of gross cash receipts and payments, while the indirect method adjusts net income for changes in balance sheet accounts to calculate cash from operating activities.

Direct Method

An approach in cost accounting that allocates service department costs directly to production departments without considering inter-service department flows.

Operating Expenses

Costs associated with the day-to-day operations of a business, excluding direct labor and materials.