Imagine a firm has a temporary surplus of cash meant to fund an expansion project in the next 9 months. Which of the following statements is correct?
A) The firm will probably want to invest this preferred stock.
B) The firm will probably want to invest this surplus in U.S. Treasury bonds.
C) The firm will probably want to invest this surplus in U.S. Treasury bills.
D) The firm will probably want to invest this surplus in whichever security yields the highest return.

Question

Quizplus · Accepted Answer

Since the surplus is temporary and meant to fund an expansion project in the next 9 months, the firm will likely want to invest in short-term, low-risk securities that can be easily liquidated when the funds are needed. U.S. Treasury bills are considered one of the safest and most liquid short-term investments available. Therefore, the best choice for the firm would be to invest in U.S. Treasury bills. Investing in preferred stocks or seeking the highest return may be too risky, while Treasury bonds may be too long-term for the firm's needs.

Imagine a Firm Has a Temporary Surplus of Cash Meant