Income Beginner: Introduction to Certificates of Deposit (CDs)

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1.
If you buy a $1,000 CD for only $600, what type of CD is it?
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Discount CD. To be discounted is to be sold for less than face value.
2.
Financial institutions are allowed to compound certificate rates as they wish.
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True. They may compound rates daily, weekly, or monthly.
3.
Why are negotiable CDs called negotiable?
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Investors can negotiate the interest/dividend rates. Although investors can negotiate numerous properties of these CDs, the name comes from the privilege of negotiating the interest/dividend rates.
4.
Compounding makes a yield _______ simple interest/dividends.
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Higher than. Compounding gives you additional earnings on top of the earnings youve already received.
5.
If you withdraw your money from a certificate of deposit before the maturity date, you will typically be penalized three to six months interest/dividends.
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True. On the average, the penalty is three to six months worth of earnings.