Question

Typically, the lowest interest rate would be paid on:

1. 30 year U.S. Treasury bonds
2. 90 day U.S. Treasury bills
3. junk bonds that mature in 5 years.
4. 10 year U.S. Treasury notes

Answer 1

Typically, 2. 90 day U.S. Treasury bills would have the lowest interest rate among the provided options due to their short-term nature and the high creditworthiness of the U.S. government.

Step-by-step explanation:

The question is focused on identifying which type of security typically offers the lowest interest rate.

Generally, interest rates vary based on the duration of the bond and the creditworthiness of the issuer.

The U.S. government is known to be an extremely safe borrower, hence, Treasury securities tend to have lower interest rates compared to corporate bonds.

Junk bonds, which are higher risk, compensate with higher interest rates.

Among the options provided, 2. 90 day U.S. Treasury bills would typically offer the lowest interest rate because they are short-term securities issued by the U.S. government, which involves less risk compared to longer-term bonds or high-risk corporate bonds.

They are also of shorter duration compared to the 10-year or 30-year Treasury options, which generally means they will pay less interest.