FIN 200 Week 6 DQ 2 - 7549

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·         Use the Wall Street Journal (http://online.wsj.com/public/us) or some other financial publication to find the going interest rates for marketable securities listed in Ch. 7 of Foundations of Financial Management. Which security would you choose for a short-term investment? How does that security assist a company in meeting its cash management goals? .

 

 

The answer to this question may well depend upon the phase of the business cycle at the time the question is considered. In normal times, small certificates of deposits and savings accounts may prove adequate. However, in a tight money period, wide differentials may be established between the various instruments and maximum returns may be found in Treasury bills, large certificates of deposits, commercial paper, and money market funds. Securities help attain the companies’ goal of safety and liquidity to meet the transaction needs of the firm and for contingency purposes.

 

2:13 p.m. EDT 07/24/09U.S. Treasurys(Roll over for charts)

 

Price
Chg

Yield
(%)

 

1-Month Bill

-0/32

0.147

 

3-Month Bill

-0/32

0.185

 

6-Month Bill

-0/32

0.277

 

1-Year Note

-1/32

0.438

 

2-Year Note

0/32

1.018

 

3-Year Note

1/32

1.573

 

5-Year Note

-0/32

2.540

 

10-Year Note

-2/32

3.674

 

30-Year Bond

-11/32

4.571

 

 

Decision regarding investment in security is related to two major factor the risk involved and duration for which the surplus cash is available; it becomes more important for short term investment.  You can see that the yields on the above securities are ranging from 0.14% to 4.571% depending on the duration.  There are other options are also available to invest in common stock through stock exchange, they might give more return as they are riskier. Company may diversify its risk by investing in different securities according to risk associated with them.

     

 

Solution Description

·         Use the Wall Street Journal (http://online.wsj.com/public/us) or some other financial publication to find the going interest rates for marketable securities listed in Ch. 7 of Foundations of Financial Management. Which security would you choose for a short-term investment? How does that security assist a company in meeting its cash management goals? .

 

 

The answer to this question may well depend upon the phase of the business cycle at the time the question is considered. In normal times, small certificates of deposits and savings accounts may prove adequate. However, in a tight money period, wide differentials may be established between the various instruments and maximum returns may be found in Treasury bills, large certificates of deposits, commercial paper, and money market funds. Securities help attain the companies’ goal of safety and liquidity to meet the transaction needs of the firm and for contingency purposes.

 

2:13 p.m. EDT 07/24/09U.S. Treasurys(Roll over for charts)