Certificates of deposit

The profit expected back on any project must be greater than that for projects having fewer risks. In 1974 some banks were offering certificates of deposit that returned a 7.5% profit per year. This investment and some Aaa bonds (see Table 10-12) or government bonds are probably minimum-risk situations. 

Tyrone purchased a certificate of deposit for 500.00 and it matured in 7 years, 6 months. If after the maturity time Tyrone was given 837.50 as his total return, what was the percent interest rate, assuming a simple interest formula ... 

Cash Reserves. This includes funds that are readily available in checking accounts, money market accounts, certificates of deposit of one year or less, U.S. Government Series EE and HH bonds, and U.S. Treasury bills. 

Invested Assets. These are certificates of deposit of more than one year, stocks, bonds, mutual funds, business interests, partnership interests, mortgages, real estate, annuities, and retirement plans. 

Money Market Accounts Certificates of Deposit U.S. Government Securities Stocks and stock mutual funds Bonds and bond mutual funds Partnership interests Business interests Deferred compensation Real estate investments Net equity from sale of residence Net equity from sale of vacation home Other retirement savings... 

U.S. Treasury Securities Certificates of Deposit Savings Accounts... 

Property Titling. Property (such as stocks, bonds, certificates of deposit, or real estate) held in joint tenancy with rights of survivorship automatically passes to the joint owner upon your death. This property is not subject to probate. If the property was acquired before 1977, the property s full value is included in your estate for tax purposes. For property acquired after that date, only your share of the property is included in your estate. Property held as tenancy in common does not follow these rules. In this case, you can leave your share to whomever you wish and it is subject to probate. 

Investments For some people, this can be most important. List all stocks, bonds, certificates of deposit, IRA or Keogh accounts, and other investments. Include issuer name and cost to you. Also indicate where items are located. Identify your stockbroker and other agents. If you have any gold coins or silver bars that constitute an investment, provide location and details. 

Assets Current assets Cash Savings account Checking account Certificate of deposits Other current assets Total current assets 3,000 3,000... 

Greg had 12,000 in his savings account. Of this amount, he transferred y into checking, j into a certificate of deposit, and spent y on a computer system. How much money remains in his savings account ... 

Investors in pharmaceutical research and development (R D) put up their money because they expect, on average, to get returns that adequately compensate them for the time and risk involved. Just as the interest rate on bank deposits is a payment for the use of depositors money (or capital), the return on an investment in R D is a payment the company or its investors get from the use of their capital. Riskier investments require higher dollar returns otherwise, investors would put their money in safe investments like U.S. Treasury bills or bank certificates of deposit. The riskier the investment, the higher the required return. The rate of return that investors must be able to expect from money invested with a given level of risk is referred to as the investment s cost of capital. ... 

The company store. Additional benefits with readily calculated dollar values come from the stores operated by large pharmaceutical companies. The companies make their own products available at substantial discounts to employees. Not only prescription drugs but over-the-coimter remedies, cosmetics, medical devices, and eye-care products are stocked. Other establishments that serve employees occupy company premises and include hair salons and credit unions. With nearly all the services of commercial banks, credit unions offer competitive interest rates for automobile loans, mortgages, checking and saving accounts, and certificates of deposit. 

That is, a money market product quoted as a yield instrument, similar to a bank deposit or a certificate of deposit. The other class of money market products are discount instruments such as a Treasury bill or commercial paper. 

Let us now consider the following situation. You would like to have 2000 available to you for a down payment on a car when you graduate from college in, say, five years. How much money do you need to put in a certificate of deposit (CD) with an interest rate of 6.5% (compounding annually) today The relationship between the future and present value was developed earlier and is given by Equation (20.2). Rearranging Equation (20.2), we have... 

One bank advertises an interest rate on a certificate of deposit (CD) to be 4% conpounded daily. 

But first, you should know what types of bonds are available. Among the types of bonds you can choose from are U.S. government securities, municipal bonds, corporate bonds, mortgage and asset-backed securities, federal agency securities and foreign government bonds. There are also many short-maturity options such as Treasury bills, bank certificates of deposit and commercial paper. 

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