Which of the following is true of a certificate of deposit?
A)It is sold by large corporations to raise short-term funds.
B)A fall in its demand will lead to an increase in the price of the security and a fall in its yield to maturity.
C)Higher the term to maturity of a certificate of deposit, higher the yield to maturity.
D)It is not a liquid security and cannot be transferred from one party to another.

Question

Which of the following is true of a certificate of deposit?
A)It is sold by large corporations to raise short-term funds.
B)​A fall in its demand will lead to an increase in the price of the security and a fall in its yield to maturity.
C)Higher the term to maturity of a certificate of deposit, higher the yield to maturity.
D)​It is not a liquid security and cannot be transferred from one party to another.

Quizplus · Accepted Answer

The yield to maturity of a certificate of deposit increases with an increase in the term to maturity, as it involves a higher commitment from the investor to hold the security for a longer period, which results in a higher return. Choices A, B, and D are incorrect as certificates of deposit are typically issued by banks and are considered to be a liquid security that can be transferred from one party to another, and the demand for it affects both its price and yield in a direct relationship.

Which of the Following Is True of a Certificate of Deposit