Which of the following is an example of a cash equivalent?

• A. U.S. Treasury bills and money market instruments
• B. Long-term government bonds
• C. Real estate investments
• D. Common stocks

Answer: (D)

Cash equivalents are short-term, highly liquid assets that can be quickly turned into cash with little risk of losing value. U.S. Treasury bills and money market instruments fit this description because they mature in a short time and carry minimal risk, making them easy to redeem or sell with little price fluctuation. Long-term government bonds have longer maturities and more price risk; real estate is illiquid and takes time to sell; common stocks can fluctuate in value and aren’t guaranteed to convert to cash quickly. So the best example is U.S. Treasury bills and money market instruments.