Question

Consider two assets: (1) a vast plot of land in West Texas which includes a cow ranch, and (2) a giant financial portfolio consisting mostly of mutual funds. Which asset is more liquid?

Group of answer choices neither is liquid; they are both consists mostly of solid matter the financial portfolio consisting mostly of mutual funds the land holdings in West Texas including the ranch both assets are equally liquid

Answer 1

Giant financial portfolio of mutual funds is more liquid than a vast plot of land because the former consisting mostly of mutual funds can be of different types- short term, ultra short term (liquid) or long term. Since mutual funds are managed by professionals, they can sell off any portion of the portfolio in active portfolio management according to market conditions. Mutual funds are considered liquid since there is high demand for many of the funds and also investors can sell their shares at any time and receive money within days. Whereas the process of selling a plot of land may take longer than a month since it takes time to find an investor, negotiate and agree on a price, and set up closing for sale. If the owner wants to sell off the plot qiuickly then he/ she might get a lesser value than its current market value therefore prices can be much more volatile.