Question

A debt instrument sold by a bank to its depositors that pays annual interest of a given amount and at maturity pays back the original purchase price is called

A) commercial paper.
B) a certificate of deposit.
C) a municipal bond.
D) federal funds.

Answer 1

Correct option is (B)

Step-by-step explanation:

Certificate of deposits are issued by banks or any other financial institution against the premium paid in the form of interest for a lumpsum amount deposited with a bank for a stipulated period.

The principal amount is paid back at maturity. Commercial papers are issued by companies and not banks. Municipal bonds are issued by the Government and federal funds are transactions between banks.