(I) Because interest rates on Treasury bills are more volatile than rates on long-term securities, the return on short-term Trea

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(I) Because interest rates on Treasury bills are more volatile than rates on long-term securities, the return on short-term Trea

sury securities is usually above that on longer-term Treasury securities. (II) A Treasury STRIP separates the periodic interest payments from the final principal repayment. A. (I) is true, (II) false.B. (I) is false, (II) true.C. Both are true.D. Both are false.

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1 answer:

kherson [118] · Answer 1 · 2022-03-29T07:05:32+03:00

Answer:

B) (I) is false, (II) true.

Explanation:

Even though short term rates (Treasury bills) are much more volatile than long term rates (Treasury bonds), it is normal that the rate of return on Treasury bills is lower than the rate of return on Treasury bonds. Some of the reasons why Treasury bills have such a low rate of return is that they are very liquid investments and they don't pay any periodic interest.