Why might a company hold low-yielding marketable securities when it could earn a much higher return on operating assets?

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Why might a company hold low-yielding marketable securities when it could earn a much higher return on operating assets?

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Why might a company hold low-yielding marketable securities when it could earn a much higher return on operating assets?

Explanation & AnswerSolution by a verified expert

Explanation

The high-yielding marketable securities are short-term less liquid securities. They carry a high interest rate because they carry greater chances of default.
The company does not want to damage its liquidity position, therefore it prefers to hold low-yielding marketable securities even though it gives a lower rate of return.

Verified Answer

The company carry low-yielding marketable securities even after it could earn a much higher return on operating assets because the risk of losing money in low yielding securities is lower compared to volatile markets.

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