Final answer:
Treasury bills are the most liquid and have the least default risk among the options provided, including CDs and commercial paper, due to their backing by the U.S. government and their high demand in the secondary market. Correct answer is option c.
Step-by-step explanation:
The student has asked about the liquidation and default risk of different types of securities. The securities in question are a 3-month Certificate of Deposit (CD), a 1-month CD, a Treasury bill, and 90-day commercial paper. Among these, Treasury bills are the most liquid and have the least default risk. Treasury bills are short-term securities with maturities typically of 13, 26, or 52 weeks and are backed by the full faith and credit of the U.S. government, making them one of the safest financial assets available.
Comparatively, a CD is an interest-bearing loan to a bank with a set maturity date. Although CDs are relatively safe, they are not as liquid as T-bills because they have early withdrawal penalties. Commercial paper is an unsecured, short-term debt instrument issued by a corporation and, though generally considered safe, carries more risk than government-backed securities.
The liquidity of T-bills is also high because they can be quickly sold on the secondary market due to their high demand among investors. The combination of high liquidity and low default risk makes T-bills the standout choice among the options provided.