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2 years ago

Describe the advantages and disadvantages of using a certificate of deposit (cd) to save money.

Business

1 answer:

Troyanec [42]2 years ago

8 0

Explanation:

Advantages of a CD

Flexible Terms: The terms and the amounts that can be deposited into a CD are flexible. If you are not willing to tie up your money for a long time, you can easily opt for a shorter term. At the end of a CD term, you can renew that CD or start a new one.

Safety: CDs that are available from a federally insured institution are generally insured up to $250,000. This takes much of the risk out of the investment.

Better Return Than Saving Accounts: Since the CD holder is not allowed to withdraw money freely like savings account holders, a CD is often more valuable to the financial institution. For this reason, the interest rate offered to a CD holder is higher than a traditional savings account.

Wide Selection: You can get a CD at various maturities and terms from different financial institutions. Because of the diversity of CDs, investors can find a CD that meets their individual needs.

Fixed, Predictable Return: The investor can be sure about getting a specific yield at a specific time. Even if the interest rates come down to a broader economy, the CD rate will remain constant. You will be able to easily determine the rate at which your balance will grow, thus making financial planning easy.

Disadvantages of a CD

Limited Liquidity: The owner of a CD cannot access their money as easily as a traditional savings account. To withdrawal money from a CD before the end of the term requires that a penalty has to be paid. This penalty can be in the form of lost interest or a principal penalty. To increase flexibility, the investor can create a CD Ladder, which is composed of CDs with different maturity dates and terms. With a laddering strategy, you have more options to access your CD savings at different intervals of time.

Inflation Risk: CD rates may be lower than the rate of inflation. This means that your money may lose its purchasing power over time if interest gains are outdone by inflation rates.

With these advantages and disadvantages in mind, it is wise to consider that CD advantages usually outweigh the disadvantages. CDs allow you to grow your savings without hassle. You can easily compare different types of CDs with the help of online resources, and you can find one that best suits your needs.

Summary of Certificates of Deposits

Certificates of Deposit (CD) are useful for people looking for a way to save money while earning a relatively high interest. This not only helps you save money, but also earns you interest without requiring any effort on your part. The disadvantages of CD’s are minor and typically outweighed by their

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The ____ is the amount earned on an investment for a given period of time.

hichkok12 [17]

Answer:

Investment income.

Explanation:

Investment income is income that comes from interest payments, dividends, capital gains collected upon the sale of a security or other assets, and any other profit made through an investment vehicle. Generally, individuals earn most of their total net income each year through regular employment income.

hope this helped broski =))

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3 years ago

Tesla, a vehicle manufacturer, incurs the following costs. (1) Classify each cost as either a product or a period cost. If a pro

vlabodo [156]

Answer:

Product cost refers to the costs incurred to create a product. These costs include direct labor, direct materials, consumable production supplies, and factory overhead. Product cost can also be considered the cost of the labor required to deliver a service to a customer.

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3 years ago

Two investment advisers are comparing performance. One averaged a 19% return and the other a 16% return. However, the beta of th

pentagon [3]

Answer (A):

Need more data to select the better adviser

Explanation: 

Adviser A averaged 19% return on the investment which is more than that of Adviser B who averaged 16% return on investment. However, adviser A has a beta of 1.5 which is also greater than that of Adviser B who has a beta of 1. This means that adviser A made a more riskier investment and hence a higher average return on investment. We need more data to tell which adviser performed better in relation to each other.

Answer (B):

Investment Adviser B

Explanation:

$R_{f}$ = T-bill rate = 6%

$R_{m}$ = Market return = 14%

$R_{m} - R_{f}$ = Market risk premium = 14% - 6% = 8%

$ER_{a}$ = Average Return by Adviser A =19%

$\beta _{a}$ = Beta of Adviser A = 1.5

$ER_{b}$ = Average Return by Adviser B =16%

$\beta _{b}$ = Beta of Adviser B = 1

CAPM Equation is $ER_{i} = R_{f} +\beta (R_{m} - R_{f} ) +\alpha$

For Adviser A

$ER_{i}$ = 6 + 1.5 (14 - 6) = 18%

The expected average return for the investment is 18% which means that Adviser A over performed the market by 1 %

For Adviser B

$ER_{i}$ = 6 + 1 (14 - 6) = 14%

The expected average return for the investment is 14% which means that the Adviser B over performed the market by 2 %

Clearly, Adviser B performed better than Adviser A.

Answer (C):

Adviser B

Explanation:

In this part, the $R_{f} = 3 %$ and $R_{m} = 15%$

All else remains the same

We make similar calculation as in part B

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3 years ago

In the 1970s japan developed new technologies and achieved high productivity that resulted in

matrenka [14]

New innovation and technology resulted into new business and made Japan a developed countryI believe the closest possible answer to this question is that Japan's prolific inventions were an advantage to the country, in that, they were able to produce business and generate a more efficient system through science and technology.

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3 years ago

Read 2 more answers

A radiology clinic is considering buying a new $700,000 x-ray machine, which will have no salvage value after installation becau

meriva

Answer: c. Ten years, because maintenance costs don't increase.

Explanation:

With the maintenance costs constant at $24,000 a year, the machine is still expected to go 10 years before it's x-ray source is depleted and it has to be scrapped.

This means that the useful life is therefore 10 years because the maintenance cost will not increase but will still keep the machine going for 10 years.

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2 years ago