"Senior management at ABC Company plans to make a large capital expenditure to bolster its infrastructure exactly one year from now. Their primary concern is to preserve the current capital position until the expected cash outlay. The majority of the cash at ABC Company is held in treasury notes, but management would like to also invest some of the money into corporate bonds and money market funds. Which investment objective BEST suits the needs of ABC Company? "

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"Senior management at ABC Company plans to make a large capital expenditure to bolster its infrastructure exactly one year from now. Their primary concern is to preserve the current capital position until the expected cash outlay. The majority of the cash at ABC Company is held in treasury notes, but management would like to also invest some of the money into corporate bonds and money market funds. Which investment objective BEST suits the needs of ABC Company? "

Option presented: D. Safety

Analysis:
- The scenario describes a one-year time horizon with a primary objective of preserving capital until a large planned outlay. This strongly points toward a capital preservation objective, which prioritizes keeping the original amount of money intact with minimal risk of loss.
- Since the funds are currently in treasury notes and there is interest in adding corporate bonds and money market funds, the emphasis is on maintaining principal while ensuring liquidity for the upcoming expenditure. Safety as an investment objective focuses on protecting the capital and limiting downside risk, which aligns with the stated need.
- Why this fits over other potential objectives (not provided in this prompt but worth noting conceptually): an income or growth objective could expose the portfolio to unnecessary risk for a short, near-term goal, potentially jeopardizing the capital needed for the one-year cash outlay. A safety objective prioritizes preservation of capital and liquidity, reducing the chance of a material decline in value over the near term.
- The use of treasury notes already reflects a risk-averse stance; reframing the objective explicitly as Safety reinforces the emphasis on protecting principal and ensuring funds are available when the expenditure occurs.

In summary, for a near-term need with a primary concern of preserving capital and ensuring availability of funds for a known cash outlay, the Safety objective is the most appropriate choice because it prioritizes capital preservation and low risk over potential higher returns.

33:390:430:90 TREASURY MANAGEMENT Quiz - Chapter 5 - Money Markets

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