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Decision Usefulness approach vs. Measurement Approach
Finance & Accounting
Pages 5 (1255 words)
Decision Usefulness approach vs. Measurement Approach Table of Contents Decision Useful Approach 3 The Single-Pearson Theory 3 The Rational Investor 4 The principal of portfolio Diversification 5 The Optimal Portfolio Investment 5 Portfolio Risk 6 Measurement Approach 6 Reasons for Market Response 7 Market Efficiency of Securities 8 Ohlson’s Clean Surplus Theory 8 Auditors’ legal liability 9 Asymmetry of investor Losses 9 Role of Financial Accounting on both Approaches 9 Works Cited 11 Decision Useful Approach This approach motivates the application of decision models.
The Single-Pearson Theory The Single-Pearson decision theory aims to understand how an investor makes rational decisions under circumstances of certainty. The theory appreciates the concept of information and enables decision makers to keep informed and modernize their beliefs. The concept uses the publicly available financial statements as source of information. Consider the following illustration to understand the concept, An investor X has $ 20000, and he has the option to invest in either in shares of ABC ltd or 2% Government bonds. The decision of X will depend on whether the future performance of ABC ltd. (good or bad). ...
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