Question

Marlon wants to save money over a long period of time. He does not need to have easy access to the money, and he is worried about losing his investment. He would like to know the interest rate up front. Which of the following options would best suit his needs? Bonds IRA Mutual fund Traditional savings account

Answer 1

Answer:

Bonds

Explanation:

Bonds fit all of Marlon's needs since:

1. He can know the interest rate up front, e.g. the coupon rate of the bond, or  the market rate if the bond is purchased at a premium or discount.
2. Some bonds have a very remote maturity date, up to 30 years (e.g. US securities) and that is a long period of time.
3. Even though Marlon can cash his money before the bond matures (he can sell them), it is something that takes a few days and must be done by a broker.
4. Bonds are very secure investments, specially US securities which are considered the most secure investment in the world, but even corporate bonds are considered secure. In case the firm goes is liquidated, bondholders receive their money before preferred stockholders and common stockholders.