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) US Treasury bills
b) Municipal bonds
c) US Treasury notes and bonds
d) Corporate bonds

Answer 1

The financial instruments described are US Treasury notes and bonds, which are long-term debt securities with maturities ranging from 2 to 30 years and are backed by the U.S. government.

Step-by-step explanation:

The financial instruments described as being backed by the U.S. government, having a fixed-rate, with maturity of more than one year, and considered default-free are US Treasury notes and bonds. Treasury notes, or T-notes, are issued with maturity dates ranging from 2 to 10 years, while Treasury bonds, or T-bills, have maturity dates of more than 10 years, up to and including 30 years. Unlike US Treasury bills which are short-term securities with maturities of 13, 26, or 52 weeks, Treasury notes and bonds are longer-term securities and are thus subject to interest rate risk though backed by the strong credit of the United States government.