Question

Which of the following reasons best explains why a company that experiences seasonal fluctuations in sales may purchase investments in debt or stock securities?

Option a: To offset the losses during the low-sales seasons.
Option b: To diversify its portfolio and minimize risks.
Option c: To increase taxes during peak sales.
Option d: To compete with other companies in the same industry.

Answer 1

A company may purchase investments in debt or stock securities to diversify its portfolio and minimize risks in the face of seasonal fluctuations in sales.

Step-by-step explanation:

A company that experiences seasonal fluctuations in sales may purchase investments in debt or stock securities for option b: To diversify its portfolio and minimize risks. By investing in different securities, the company can spread its risk across different assets and reduce the impact of low sales during certain seasons. For example, if the company purchases stocks in one industry that performs well during its low-sales season, it can offset the losses from its core business. This strategy helps the company maintain stability and financial security.