Question

Identify the financial instruments based on the following descriptions:

Backed by the U.S. government, these financial instruments are fixed-rate debt securities with a maturity of more than one year. They are considered default-free but are subject to interest rate risk.
a) State and local government bonds
b) US Treasury bills
c) US Treasury notes and bonds
d) Corporate bonds

Answer 1

The financial instruments in question are US Treasury notes and bonds, which are government-backed fixed-rate debt securities with maturities greater than one year.

Step-by-step explanation:

The financial instruments described in the question are backed by the U.S. government, have a maturity of more than one year, and are fixed-rate debt securities. Based on these characteristics, the correct answer is c) US Treasury notes and bonds.

Treasury notes (T-notes) are typically issued with maturities of 2 to 10 years, and Treasury bonds (T-bonds) have longer maturities ranging from 10 up to 30 years. Both Treasury notes and bonds have varying denominations starting from $1,000 to $5,000. They are highly regarded as safe financial assets because they are backed by the 'full faith and credit' of the U.S. government, which is considered low-risk, though they are still subject to interest rate risk.