Evaluating Cash Equivalents
Tyson Furniture has $100,000 in excess cash that it wants to invest in one or more cash equivalents. The treasurer has researched two money market accounts and two certificates of deposit (CDs) offered by four major banks. This is the information she gathered:
Investment Institution | Investment Type | MinimumInvestment | Interest Rate | Penalty for Early Withdrawal? | financial Risk |
Nexity Bank | Money market account | $ 1,000 | 0.5% | No | Very low |
Bank of America | Moneymarketaccount | 50,000 | 1.0 | No | Very low |
Discover Bank | 90-day CD | 2,500 | 1.3 | Yes | Very low |
Commerce Bank | 90-dayCD | 100,000 | 1.4 | Yes | Very low |
The two 90-day certificates of deposit are FDIC insured for up to $100,000. The money market accounts are not FDIC insured.
Suggest howTyson Furniture might allocate its $100,000 cash among these four opportunities.
Discuss the trade-offs that management must consider
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