Finance - Annuities and Loans

timer Asked: Jun 28th, 2018
account_balance_wallet $15

Question description

Treasury bills and Treasury notes are an investment security issued by the U.S. government. A Treasury bill matures within one year and investors typically roll over the matured Treasury bill and purchase another Treasury bill the same day. Treasury notes have maturities of up to 10 years.

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 time frame is 9 years.

Current investment opportunity interest rates are 5% and are expected to increase to 7% in 6 months. Would you invest in the Treasury bill that you can rollover every 6 months and reinvest or leave your money in the Treasury note that will mature in 9 years? Discuss your reasoning.

Tutor Answer

School: University of Maryland



Annuities and Loans
Treasury bonds serve the most extended maturities of all government issued securities.
They are also referred to as long relationships. To people who buy Treasury bonds in return, they
receive an interest every six months of bond issues. Since its maturity rate is extended, its prices
will fluctuate and also correlates with higher interest rates for investors. Also since treasury bonds
are fixed rates securities, their yield to maturity is expected to pay over its lifetime (Kavanaugh,
2005). The treasury department sells the bills notes and bonds at a fixed ra...

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