Income Beginner: Introduction to Certificates of Deposit (CDs)

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If you buy a $1,000 CD for only $600, what type of CD is it?

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Add-on CD

Discount CD

Credit union CD

Bargain-rate CD

Discount CD. To be discounted is to be sold for less than face value.

Financial institutions are allowed to compound certificate rates as they wish.

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True

False

True. They may compound rates daily, weekly, or monthly.

What is the denomination range for small-savings certificates of deposit?

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$0$10,000

$500$10,000

$1,000$100,000

Less than $100,000

Less than $100,000. Small-savings CDs may not exceed $100,000.

Why are negotiable CDs called negotiable?

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Investors can negotiate the denominations.

Investors can negotiate the interest/dividend rates.

Investors can determine the maturities.

Investors can negotiate the CDs quotes on the NASDAQ.

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.

The length of time for which a certificate of deposit stays in the financial institution contributes to the size of its interest or dividend rate.

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True

False

True. Length of time is one factor among many that determine interest or dividend rates.

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