Certificate of Deposit

Posts Tagged ‘finance’

Question: Is there any advantages to a CD over a Money Market account if they earn the same percentage?

For example sake, if I have a 1 year CD, with 10,000 dollars in it, and the rate is 3 percent. And I have a Money Market account that I have 10,000 dollars sitting in that draws 3 percent interest, is there any advantage to the CD? Why would I want to lock my money up in a CD, when I can just have it sit in an account I can access at any time thats the same percentage?

Thanks!

Answer: Sounds like you’ve got a clear understanding of it and you’re right: in today’s environment, there is no reason to commit your money to a CD. You can get the same interest and maintain liquidity with a Money Market account.

CD Rate

Question: How do you Price a Certificate Of Deposit: see details below?

A UK, CD has a quoted current yield y = 10% and a face value of £1m. It now has 60 days to maturity but when it was issued it had an original maturity of 120 days and a quoted yield of y = 12% p.a. (Day count convention is actual/365).

Calculate :
(a.) the current market price (P) of the CD.
(b.) check that at this price you will earn 10% over the remaining life of the CD.

Answer: Not a very realistic question

I think your teacher has the decimal point in the wrong place … a 60d CD would have a yield of 1% (if you are lucky )

Assuming zero inflation (which we have to, since you don’t quote a figure .. although you do say UK, so I COULD look it up .. but I leave that to you … why does it matter ???? well let’s assume the CD is in Zimbabwean Dollars [which were suspended indefinitely on 12 April 2009, due to hyperinflation] ) …

When it matures you will get face value (£1m) plus the original yield.

Amount you will get is thus £1m + 12% * (120/365) [this assumes that ALL the interest is paid at maturity and NOT accumulated on a daily basis]

So if the ‘yield’ is now 10% p.a. with 60 days to go, then this must mean that the actual payout (above) is equal to what you paid + 10%* (60/365)

(I assume you can use a calculator to work this out ?)

Wealth Accumulation with FREEDOMFLEX®

Question: Are there different types of Money Market accounts related to a 401k plan?

In my 401k can I put all my contributions into 1 money market account.Or do I have to split my contribution up>

Answer: Yes…although I’m not sure I understand the question you mean to ask.

A 401(k) plan may actually have two or more accounts for you — your contributions will be kept “separately” from your employers contributions for you, for example — but if a Money Market fund is offered for your plan, you should be able to put 100% of your contributions in that Money Market fund.

Investment Facts : Advantages of Investing in a Money Market Account