Question

6) Companies generally purchase investments in debt and equity securities a) to generate a return on excess cash until needed. b) to generate investment income. c) to meet strategic goals. d) all of the above

Answer 1

Solution : Option d

All of the above

Companies generally purchase investments in debt and equity securities for the following reasons

1) The company may have excess cash. There wouldn't be any value addition if this excess cash is kept idle. Also the value of the money would reduce in the future ( time value of money). Therefore companies invest in debt & equity securities to generate a return on excess cash until needed.

2) Companies earn returns in the form of interest and dividends on making investments in debt and equity securities. Therefore companies generate investment income.

3) Also, companies meet their strategic goals as they can achieve expansion and diversification by making investments in other industries. This helps companies to survive when there is an economic downturn.

Therefore the answer is option d, all of the above.