MMF holds $300,000 in US Treasury bills earning 2% annually for an equipment purchase in three months.
Some of those funds may be needed earlier for emergencies. The available three-month commercial paper
offers 4% but cannot be converted to cash before its maturity in three months.
A money market mutual fund offers 3% and the ability to redeem to get cash the next business day, similar to the liquidity when selling US Treasury bills. Which policy
best fits MMF’s priorities for these short-term investments?

Question

Answer

Prioritize safety and access to cash, especially for the emergency portion, then seek the highest return from the suitable options

Answer

Avoid these investments and invest in the common stock of a company like Nike or Crocs because they might return more than 4% over the next three months

Answer

Keep every dollar in non-interest bearing cash regardless of when it is needed for protection against any and all possible emergency needs

Answer

Invest all funds in commercial paper solely because its quoted return is highest of these options

Crowdly

MMF holds $300,000 in US Treasury bills earning 2% annually for an equipment pur...

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