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Of the following investments, which can be said to have the greatest liquidity?(1 point)

Responses

A $500
investment to open a certificate of deposit earns $5
after 6 months. Funds are withdrawn at the end of the 6-month period.
A 500 dollars investment to open a certificate of deposit earns 5 dollars after 6 months. Funds are withdrawn at the end of the 6-month period.

A $1,000
investment in stocks earns $100
every year. The stocks can be sold within 24 hours.
A 1,000 dollars investment in stocks earns 100 dollars every year. The stocks can be sold within 24 hours.

A $250,000
investment in real estate earns $10,000
every year. The asset can be sold for cash after 3 months of offering the asset for sale.
A 250,000 dollars investment in real estate earns 10,000 dollars every year. The asset can be sold for cash after 3 months of offering the asset for sale.

A $500
investment in a savings account earns $2
every year. Funds are withdrawn with notice given 30 days in advance.

1 answer

Liquidity refers to how easily an asset can be converted into cash without significantly affecting its value. Based on the options provided, we can evaluate the liquidity of each investment:

  1. Certificate of Deposit (CD): The funds are locked in for 6 months and cannot be accessed until the term is completed, making it relatively less liquid.

  2. Stocks: Stocks can typically be sold quickly (often within 24 hours) in the market, making them highly liquid.

  3. Real Estate: It usually takes time to sell a property (in this case, 3 months), so it is considered less liquid.

  4. Savings Account: This option requires a 30-day notice to withdraw, making it less liquid compared to other options.

Given this analysis, the investment with the greatest liquidity is:

A $1,000 investment in stocks that earns $100 every year and can be sold within 24 hours.