You are considering investing $50,000 in a Treasury bill
that you will renew every 6 months or invest in a Treasury note that you
will hold until maturity. Your investment timeframe is 9 years. Current
interest rates are expected to increase. Would you invest in the
Treasury bill or Treasury note?
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Given the information in this scenario I would opt to invest in the Treasury notes. The Treasury bills (or “T-bills”) are short term bonds that mature within one year or less from their time of issuance (Kenny, n.d.). Since my investment timeframe is nine years I would benefit more from investing in Treasury notes which have a more distant maturity date and a higher yield. T-bills are sold with maturities of four, 13, 26, and 52 weeks (Kenny, n.d.). The one-, three-, and six-month bills are auctioned once a week, while the 52-week bills are auctioned every four weeks (Kenny, n.d.). Since the maturities on Treasury bills are so short, they typically offer lower yields than those available on Treasury notes (Kenny, n.d.). Treasury notes are issues with maturities of one, three, five, seven, and 10 years. $50,000 invested in a Treasury bill would have to be renewed frequently at lower yields. The growth of the principal would be in small increments. The same dollar amount invested in Treasury notes would yield higher returns over nine years. My best option for significant growth is in the Treasury note.
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Dec 2nd, 2015
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