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Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881

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BuyFindarrow_forward

Cornerstones of Financial Accounti...

4th Edition
Jay Rich + 1 other
ISBN: 9781337690881
Textbook Problem
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How do long-term investments differ from short-term investments?

To determine

The difference between Long term and Short term investments.

Explanation

Long term investments are the investments that a company usually intends to hold for more than 1 year whereas Short term investments are defined as investments that an investor is expected to hold for 1years or less, then they can sell or covert those investments into cash.

Examples of Short term investments are Money market funds, short term bonds, certificates of deposits etc.

Long term investments are shown on the asset side of the company’s balance sheet that represents the investments of the company they include: Bonds, stocks, cash, real estate etc.

Long term investments are easier and safe to plan.

Basis Long term investments Short term investments
Definition the investments that a company usually intends to hold for more than 1 year investments that an investor is expected to hold for 1years or less, then they can sell or covert those investments into cash
Example Bonds, stocks, cash, real estate Money market funds, short term bonds, certificates of deposits etc.
Expectations They expect a good amount of return Do not expect much return
Goals Long term goals like building resources to help pay for a comfortable retirement. Short term goals like purchase of a car or funds for a vacation.
Risks Risk associated is volatility, fluctuations in the financial market. Risk associated is Purchasing power risk- risk that the investment’s return will not keep up with the inflation.

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