Question

In: Finance

Laura has a $100,000 balance in her checking account at Best Bank, and she has purchased...

Laura has a $100,000 balance in her checking account at Best Bank, and she has purchased a certificate of deposit (CD) worth $50,000 issued by Best Bank. Laura is also thinking of investing $200,000 either in Best Bank or in Trust Bank. Which of the following is a suitable strategy for Laura if she wants her deposits to be completely insured?

a. Laura should invest $150,000 in a money market deposit account (MMDA) of Best Bank and invest $200,000 in a money market deposit account (MMDA) of Trust Bank.

b. Laura should invest $200,000 in a money market deposit account (MMDA) of Best Bank.

c. Laura should invest $150,000 in a money market deposit account (MMDA) of Best Bank and invest $100,000 in an asset management account of Trust Bank.

d. Laura should invest $100,000 in a money market deposit account (MMDA) of Best Bank and invest $100,000 in an asset management account of Trust Bank.

e. Laura should invest $100,000 in a money market deposit account (MMDA) of Best Bank and invest $100,000 in an asset management account of Best Bank.

Solutions

Expert Solution

Answer: Option d

Laura should invest $100,000 in a money market deposit account (MMDA) of Best Bank and invest $100,000 in an asset management account of Trust Bank.

MMDA account is an interest-bearing account which pays higher interest rate than a normal saving accounts and also gives limited check writing ability to the account holder. These are having combined benefits of savings and checking account (allows account holder to numerous deposits and withdrawals than normal saving or investment account) and also required to maintain higher balance to get returns at higher rates. MMDA accounts also provides federal insurance protection, these accounts are taxable. So, it is better to invest diversify accounts and Laura can make $1,00,000 in MMDA to earn higher interest rates and its also insured.

Asset management accounts (AMA) allows account holder financial benefits for investment account and banking services combined with interest bearing checking account. There are usually minimum account fees and charged annual maintenance fees. When money is placed into the account, it is automatically placed into a money market account, which carries a higher interest rate than normal checking or savings accounts. As having other benefits than MMDA account it is better to invest Laura $1,00,000 in AMA account.

Answer: Option d

Laura should invest $100,000 in a money market deposit account (MMDA) of Best Bank and invest $100,000 in an asset management account of Trust Bank.

MMDA account is an interest-bearing account which pays higher interest rate than a normal saving accounts and also gives limited check writing ability to the account holder. These are having combined benefits of savings and checking account (allows account holder to numerous deposits and withdrawals than normal saving or investment account) and also required to maintain higher balance to get returns at higher rates. MMDA accounts also provides federal insurance protection, these accounts are taxable. So, it is better to invest diversify accounts and Laura can make $1,00,000 in MMDA to earn higher interest rates and its also insured.

Asset management accounts (AMA) allows account holder financial benefits for investment account and banking services combined with interest bearing checking account. There are usually minimum account fees and charged annual maintenance fees. When money is placed into the account, it is automatically placed into a money market account, which carries a higher interest rate than normal checking or savings accounts. As having other benefits than MMDA account it is better to invest Laura $1,00,000 in AMA account.

Making equal disribution in the benfitted accounts will minimize our portfolio risk.

jeff jeffy answered 1 year ago
Next > < Previous

Related Solutions

Edith is college student; she has $5,000 in her bank account at Mesa Verde Bank. One...
Edith is college student; she has $5,000 in her bank account at Mesa Verde Bank. One day, she writes a check for $1,000 to pay for books, and she deposits $2,000. You need to show your calculation when needed and justify your answers. Answering with just a figure will earn only half the credit. a. What is the initial available balance on her bank account? b. Calculate her book value after she wrote the check. c. Calculate her disbursement float....
Blairsville Corp. prepares monthly bank reconciliations of its checking account balance. The bank statement for July...
Blairsville Corp. prepares monthly bank reconciliations of its checking account balance. The bank statement for July 2016 indicated the following: Balance, July 31, 2016 $63,400 Service charge for July 160 Interest earned during July 100 NSF check from Black Corp. (deposited by Blairsville) 1,150 Note ($3,000) and interest ($80) collected for Blairsville from a customer of Blairsville’s 3,080 An analysis of canceled checks and deposits and the records of Blairsville revealed the following items: Checking account balance per Blairsville’s books...
Corbin Catering prepares monthly bank reconciliations of its checking account balance. The bank statement received by...
Corbin Catering prepares monthly bank reconciliations of its checking account balance. The bank statement received by Corbin Catering for February 20X9 follows:,Corbin Catering, First Fifth Bank,54 Windsong Drive ,POBox 22, BANK STATEMENT ,DATEOF STATEMENT: February 28, 20X9,,Balance,February 1, 2009,$29,500,Interestearned ,$100,Servicecharge,$40,Accountcollected on behalf of Corbin ,1,600,Checks:,#310 ,120,#312,260,#313 ,180,#314 ,215,#316 ,80,#317 ,110,Deposits:,February 15, 20X9 ,5,000,Ending Balance ,$35,195,Corbin Catering’s books disclosed the following additional information:, Checking account balance, February 1, 20X9 ,$29,500,Checkswritten:,#310 ,$120,#311 ,40,#312 ,260,#313 ,180,#314,215,#315 ,200,#316 ,80,#317 ,110,Deposits:,February15, 20X9,$5,000,February28, 20X9,2,500,Endingbalance ,$35,795,:, a)Prepare...
Maria has $ 5,000 in her checking account, a house with a market value of $...
Maria has $ 5,000 in her checking account, a house with a market value of $ 155,000 and shares valued at $ 8,000. She also owes $ 5,000 on her credit card. Maria's liquidity index is:
Erica has her savings in a bank account that pays 4.0% interest per year. She is...
Erica has her savings in a bank account that pays 4.0% interest per year. She is considering buying stock in a pharmaceuticals company that is developing a cure for cellulite. Her research indicates that she could earn 45% in one year if the cure is successful or lose 65% in one year if it is not. At what probability of success would the pharmaceuticals stock be the better choice? (Round your answer to two decimal places.)
Stacy deposits $1,000 in her checking account. The bank ends up loaning $400 from the $1,000...
Stacy deposits $1,000 in her checking account. The bank ends up loaning $400 from the $1,000 to another customer, and placing $600 in the bank’s vault. Thus, as a result of Stacey’s deposit and the bank’s actions, the money supply has Select one: a. Increased by $400. b. Declined by $200. c. Increased by $200. d. Declined by $400. Anna deposits $300 in her checking account, and her bank loans the $300 out to Jim the next day. Who is...
Mr. Jones now has a $100,000 balance in a bank account which earns 7% annual interest....
Mr. Jones now has a $100,000 balance in a bank account which earns 7% annual interest. One year from now, he will withdraw 10% of the total amount in the account and reinvest that amount withdrawn in a different account earning 12% at a second bank. He repeats this procedure each year thereafter, transferring 10% of his account at the first bank to the second bank. After 40 years from now, how much does he have at each bank? (Hint:...
The Fitzgerald Company maintains a checking account at the Bank of the North. The bank provides...
The Fitzgerald Company maintains a checking account at the Bank of the North. The bank provides a bank statement along with canceled checks on the last day of each month. T he October 31, 2016, bank statement included the following information: Balance, October 1, 2016 $ 32,690    Deposits 86,000    Checks processed -75,200    Service charges -350    NSF checks -1,600    Monthly loan payment deducted       directly by bank from account       (includes $400 in interest)    (3,400)...
The Fitzgerald Company maintains a checking account at the Bank of the North. The bank provides...
The Fitzgerald Company maintains a checking account at the Bank of the North. The bank provides a bank statement along with canceled checks on the last day of each month. The October 31, 2016, bank statement included the following information:   Balance, October 1, 2016 $ 32,590        Deposits 81,000        Checks processed (70,200)       Service charges (250)       NSF checks (1,500)       Monthly loan payment deducted        directly by bank from account        (includes $300 in interest) (2,300)     Balance, October 31, 2016 $ 39,340    The...
Distinguish among the following: a general checking account, an imprest bank account, and a lockbox account.
Distinguish among the following: a general checking account, an imprest bank account, and a lockbox account.
ADVERTISEMENT
Subjects
ADVERTISEMENT
Latest Questions
ADVERTISEMENT