Question

When a manufacturer invests in short-term marketable securities:

A. the return on investment is more important than the risk involved.

B. the securities are likely to have a maturity date more than a year in the future.

C. the market value of the securities is likely to fluctuate significantly.

D. risk avoidance is of great importance.

Answer 1

Risk avoidance is a key consideration for a manufacturer investing in short-term marketable securities, as they prioritize capital preservation and liquidity over maximized returns.

Step-by-step explanation:

When a manufacturer invests in short-term marketable securities, the correct statement is that risk avoidance is of great importance (Option D). Short-term marketable securities are typically investments with maturity dates within one year, and manufacturers often seek such investments for the preservation of capital and liquidity rather than maximum returns. The priority for manufacturers in this case is to mitigate risk as they may need access to the funds on a relatively short notice and cannot afford significant fluctuations in value.

Answer 2

Choose D: When manufacturers invest in short-term marketable securities, the priority is usually on risk avoidance to ensure capital protection and liquidity. These securities have short maturities and are intended to balance the tradeoffs between risk and return.

Step-by-step explanation:

When a manufacturer invests in short-term marketable securities, risk avoidance is of great importance (D). This is because the goal with short-term investments is often to protect capital while earning a return that is safer than aggressive, high-risk investments. These marketable securities typically have a maturity date that is less than a year, unlike long-term securities which have a maturity date more than a year in the future. While the potential return on these short-term investments might be lower than more volatile investments, the reduced risk makes them suitable for many companies that require liquidity and capital preservation.

The intent is to balance the tradeoffs between risk and return, which are important considerations for investors at different stages of life. For example, a person nearing retirement may prefer such low-risk investments for stability, while a younger individual may opt for higher-risk stocks with the potential for greater long-term returns.