Imagine a firm has a temporary surplus of cash meant to fund an expansion project in the next nine 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 firm has a temporary surplus of cash meant to fund an expansion project in the next nine months, it would prefer a short-term investment option. U.S. Treasury Bills are short-term securities with a maturity of less than one year and are considered one of the safest investments. Therefore, the firm will probably want to invest this surplus in U.S. Treasury bills. Investing in preferred stock or any other investment option with a higher return may involve higher risk, which may not be suitable for the firm's temporary surplus.

Imagine a Firm Has a Temporary Surplus of Cash Meant