Which of the following is a certificate of deposit
(CD)? (1 point)
An account paying 0.5% interest with no other limitations.
A deposit that has to be maintained in the bank for 1 year in exchange of a 2% interest.
A "basket" of money pooled in by many investors to acquire securities based on the value of cash.
An investment in stocks.
A deposit that has to be maintained in the bank for 1 year in exchange of a 2% interest.
The correct answer is option 2: A deposit that has to be maintained in the bank for 1 year in exchange for a 2% interest. A certificate of deposit (CD) is a fixed-term deposit with a bank or financial institution where the depositor agrees to keep the money invested for a specific period in exchange for a predetermined interest rate. CD's typically offer higher interest rates compared to regular savings accounts due to the fixed term and limited liquidity.
To determine which of the options is a certificate of deposit (CD), we need to understand what a CD is. A certificate of deposit is a financial product offered by banks and credit unions where an individual deposits a specific amount of money for a fixed period of time, typically ranging from a few months to several years. In return, the bank pays an agreed-upon interest rate, usually higher than a regular savings account.
Now, let's analyze the given options:
1. An account paying 0.5% interest with no other limitations: This does not meet the definition of a CD as it does not require a specific time commitment.
2. A deposit that has to be maintained in the bank for 1 year in exchange for a 2% interest: This option aligns with the characteristics of a certificate of deposit. It includes a specific time commitment (1 year) and an interest rate (2%) associated with it.
3. A "basket" of money pooled in by many investors to acquire securities based on the value of cash: This refers to an investment strategy called a money market fund or a mutual fund. It does not fall under the category of a CD.
4. An investment in stocks: Investing in stocks refers to buying shares of a company's stock, which is a different financial instrument and not a CD.
Therefore, the correct answer is option 2: A deposit that has to be maintained in the bank for 1 year in exchange for a 2% interest.