41.The terms "risk" and "return" are related in that
a.risky investments always generate low returns
b.as risk goes up, higher returns are expected
c.they generally rise and fall somewhat inversely
d.smaller investments usually incur smaller risk but generate higher returns
42.What do the concepts of "risk" and "return" have in common?
a.they both relate only to debt financing
b.they both relate only to equity financing
c.they can both be affected by changes in market conditions
d.by definition, they are equal in any investment
43.Which of the following statements about risk and return is TRUE?
a.the return on a riskier investment will always exceed the return on a less risky investment so as to compensate the investor for the higher risk incurred
b.a basic function of accounting information is to assist investors in predicting risk and return
c.obtaining resources from creditors is generally less risky for an organization than is obtaining resources from owners
d.investments made by creditors are usually riskier to the investor than those made by owners
44.Which of the following statements about risk and return is TRUE?
a.the return on a riskier investment will always exceed the return on a less risky investment so as to compensate the investor for the higher risk incurred
b.it is generally more risky to contract with suppliers than with customers
c.obtaining resources from creditors is generally less risky for an organization than is obtaining resources from owners
d.investments made by owners are usually riskier to the investor than those made by creditors
45.Ostrich Company and Magnolia, Inc., report the profitability data below. Each firm had the same amount of resources invested during the five years shown.
2011 2010 2009 2008 2007
Magnolia’s profits $4,050 ($1,875) $3,750 ($1,500) $3,000
Ostrich's profits $1,525 $1,450 $1,775 $1,500 $1,250
Which company demonstrated the highest amount of risk and which firm earned the highest return?
a.Highest Risk: Ostrich; Highest Return: Ostrich
b.Highest Risk: Ostrich; Highest Return: Magnolia
c.Highest Risk: Magnolia; Highest Return: Ostrich
d.Highest Risk: Magnolia; Highest Return: Magnolia
46.Profitability data for two firms are given below. Each firm had the same amount of resources invested during the five years shown. Parentheses are used to show losses.
2007 2008 2009 2010 2011
Firm B's profits $150 $190 $200 $210 $210
Firm A's profits $400 ($200) $500 ($250) $540
Which firm demonstrated the highest amount of risk and which firm earned the highest return?
a.Highest Risk: A; Highest Return: A
b.Highest Risk: A; Highest Return: B
c.Highest Risk: B; Highest Return: A
d.Highest Risk: B; Highest Return: B
47.Accounting information is used to assess the risk of
Selling to Buying from
Specific Customers Specific Suppliers
a.Yes Yes
b.No Yes
c.Yes No
d.No No
48.The amount of risk and return experienced by an organization are influenced by
Management's
financing, investing Competition
and operating decisions and regulation
a.Yes Yes
b.Yes No
c.No Yes
d.No No
49.Accounting information is used
By customers By suppliers
to evaluate to evaluate
their suppliers their customers
a.Yes Yes
b.Yes No
c.No Yes
d.No No
50.Which of the following provide resources to an organization in exchange for future returns?
Owners Creditors
a.No Yes
b.No No
c.Yes Yes
d.Yes No