An investment that is readily convertible to a known amount of cash and that is sufficiently close to its maturity date so that its market value is relatively insensitive to interest rate changes is a(n):
A) Short-term marketable equity security.
B) Operating activity.
C) Ordinary share.
D) Cash equivalent.
E) Financing activity.

Question

Quizplus · Accepted Answer

A cash equivalent is an investment that is readily convertible to a known amount of cash and is considered to have a short maturity period, typically three months or less. Since the market value of a cash equivalent is relatively insensitive to interest rate changes, it is a low-risk investment that can be easily liquidated for cash in a short period of time. Examples of cash equivalents include treasury bills, commercial paper, and money market funds.

An Investment That Is Readily Convertible to a Known Amount