Problem

Evaluating Cash EquivalentsTyson Furniture has $100,000 in excess cash that it wants to in...

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

Minimum  Investment

Interest  Rate

Penalty for Early Withdrawal?

Financial  Risk

Fidelity Bank

Money market account

$ 2,500

0.05%

No

Very low

Bank of America

Money market account

10,000

0.08

No

Very low

Discover Bank

90-day CD

2,500

0.90

Yes

Very low

Commerce Bank

90-day CD

2,500

0.15

Yes

Very low

All of these accounts are FDIC insured for up to $250,000.

Suggest how Tyson Furniture might allocate its $100,000 cash among these four opportunities. Discuss the trade-offs that management must consider.

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