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 unaffected by interest rate changes is a(n):
A) Operating activity.
B) Cash equivalent.
C) Short-term marketable equity security.
D) Common stock.
E) Financing activity.

Question

Quizplus · Accepted Answer

A cash equivalent is an investment that can easily be converted to cash and has a maturity date that is close enough so that its value is not affected by interest rate changes. This type of investment is often used to temporarily hold funds while waiting for a future use or to meet short-term cash needs. Examples of cash equivalents include Treasury bills, commercial paper, and money market funds.

An Investment That Is Readily Convertible to a Known Amount