Question

Consider the relative liquidity of the following assets:
Assets:
1. A bond issued by a publicly traded company
2. A $50 bill
3. The funds in a savings account
4. A boat you own
Required:
a. Select the assets in order of their liquidity, from most liquid to least liquid.

Answer 1

Answer:

2, 3, 1, 4

Explanation:

Liquidity refers to how promptly an asset can generate cash.  Measure of liquidity is the time period which an asset takes to generate cash. Cash in hand is generally considered to be the most liquid asset as it can be instantly used for purchases and payments.

In the given case, following would be the order of liquidity:

1. A $50 bill is the most liquid (2). A Bill can be readily converted into cash.
2. Funds in a savings account (3). Withdrawal of funds from a savings account hardly takes a day or two.
3. A Bond issued by a publicly traded company.(1) Public bonds are a safer investment and at the same time the broker can sell these bonds in short span of time and the holder receives cash in another few days.
4. A boat you own. (4) A boat represents an asset which may or may not find an instant buyer owing to it's specific utility.