Question

4. Your small company has $25,000 in surplus cash right now. You don't want to commit these funds to any long-term investments because you know of some expenses coming up in about eight months that will require the use of this cash. But you would like to find some safe, liquid interest-earning investments where you could park your cash until it is needed. You've decided that T-bills and money market mutual funds are your best options, but you want to find out more about both. Use the Internet to do some research about these cash equivalents, and then answer the questions below. How do you purchase T-bills? If you want to invest in T-bills, what is the minimum amount you can invest? Can you sell these bills before they mature? How do you receive the interest on T-bills? What is the interest rate earned on the most recent T-bills? How do you purchase money market mutual funds? How do these funds differ from money market accounts? What are the different types of money funds? Are there any drawbacks to investing in these funds? Investigate two specific money market mutual funds. What interest rate does each currently offer is the minimum required investment for each? .Based on your research, how much of the $25,000 would you invest in T-bills and how much in money market mutual funds? Why?

Answer 1

Ans 1)

T Bills can be purchased through banks, financial institutions, brokers and brokerages houses who deals in debt and equity brokerage.

$ 1,000 is the minimum amount is required to invest in TBills

Yes, we can sale TBills before maturity. In secondary market we can buy and sale TBills anytime.

Interest is received in transfer of cash in bank account

1.58% is the prevailing coupon on 4 weeks maturity TBills

Ans 2)

T Bills can be purchased through Asset Management Companies , financial institutions, brokers and brokerages houses who deals in debt and equity brokerage.

Money market account is like saving account, without any risk while money market fund is an investment which carries risk. Money market account is insured by FDIC while money market fund is not insured.

Types of funds - US Treasury Funds, US Government Funds, US Government Agency Funds, Taxable Funds and Taxfree funds

There is only interest rate risk associated with money market funds else these are safe investments. Also they offer comparatively less returns than equity funds

Ans 3)

Invesco Premier Portfolio interest rate 2.42% and minimum investment is $1,000

Vanguard Prime Money Market interest rate 2,38% and minimum investment is $3,000

Ans 4)

Based on research and need of funds in near future I will invest 50% in TBills and remaining 50% in money market funds. By doing that I am eliminating any type of risk and my money is safe when I need it.

Hope it helps, feel free to share your feedback. Thanks and have a good day.