Question

In: Finance

Compare and contrast the risk, advantages and fees between these 10 financial products. Certificates Of Deposits....

Compare and contrast the risk, advantages and fees between these 10 financial products.

Certificates Of Deposits.
Savings Accounts.
Government Bonds.
Car Loans.
Housing Loans.
Mutual funds.
T-Bills
Equity Stocks.
Credit Cards.
& Private Bonds.

Solutions

Expert Solution

Product Risk Advantages Fees
CD Very Low-Risk Issued by commerical banks, hence they are very low-risk as they are insured by FDIC. They are available for both long and short term maturities. They are available with fixed interest rates No fees
Savings Account Very Low-Risk Money is kept safe. It is very low-risk as they are accepted by commercial banks and insured by FDIC. Interest is earned on savings Low fee. Minimum balance may be required
Govt. Bonds Risk-Free Risk-free as they are guaranteed by Central Bank/Governments. Available for all maturities. Coupon bonds, coupon-free bonds, STRIPS are available. No fees
Car Loans Risk of changing interest rates in case of floating-rate loans Upfront money to buy a car is difficult. Loans can be utilized to own car and pay instalments over time. Interest is tax-deductible for businesses Fee may be charged in form of mortgage points, processing fee, or insurance
Housing Loans Risk of changing interest rates in case of floating-rate loans Upfront money to buy a house is difficult. Loans can be utilized to own a house and pay instalments over time. Fee may be charged in form of mortgage points, processing fee, or insurance
Mutual Funds Low to above-average risk based on type of mutual fund - debt, equity, or hybrid Passive investors can invest in the markets by investing in funds which are professionally managed.   Various kinds of mutual funds available for a wide range of investment objectives Fee is in the form of % of AUM. Distribution fee may be charged by distributors
T-Bills Risk-Free Risk-free as they are guaranteed by Central Bank/Governments. Available for maturites upto 2 years. Coupon bills, coupon-free bills, STRIPS are available. No fees
Equity Stocks Average to high risk Higher expected returns as they are riskier. No fees
Credit Cards Average to high risk Instant credit available. Can be used at POS, online transactions, and ATMs. High fees in the form of interest, processing fee, annual maintenance charges, transaction charges etc.
Private Bonds Below average to high risk Higher interest than government bonds. Lower risk than equities No fees

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