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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.

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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
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