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Whats the biggest benefit to using a certificate of deposit (CD) to fund a short-term goal?

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CDs are insured

CDs always offer better interest rates than other short-term investments

The return on a CD is guaranteed

The return on a CD is guaranteed. A CDs return is predictable. Buy a 12-month CD promising X% rate and thats exactly what youll get.

What is the average duration of a bond in an ultrashort bond fund?

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One year

Six months

One week

Two years

Six months. This is why they are called ultrashort.

Bank-loan funds have very little interest-rate risk to worry about.

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True

False

True. Because they invest in floating-rate loans, bank-loan funds have very little interest-rate risk.

How do ultrashort-bond funds limit risk?

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They all invest in short-term securities, typically with durations of six months or less.

They only invest in high-quality credits.

Theyre insured.

They all invest in short-term securities, typically with durations of six months or less. Not all ultrashort-bond funds stick exclusively with high-quality securities. And they are not insured.

For many, a disadvantage of certificates of deposit is that _______.

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You must hold them for a set period

They are insured

Their returns are unpredictable

You must hold them for a set period. There are early-withdrawal penalties if you take your money out early.

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