Question

Stocks are a risky investment. Treasury Bills are a highly liquid and risk free investment whose interest income is not subject to state income taxes. Stocks have significantly outperformed Treasury Bills over the long term. In light of these higher returns, which best explains why an individual would invest in Treasury Bills vs. stocks

Answer 1

Answer: c. Preference for a very low risk investment would result in an individual choosing Treasury Bills over stocks despite lower expected returns.

Step-by-step explanation:

Treasury bills offer little to no risk and would be perfect for people who do not want risky investments and are willing to receive a lower return in exchange for that lack of risk.

There are many reasons people would do this such as age where for instance, older people who are retired would prefer a steady source of income that they know is risk free as opposed to risky assets like stocks that could fail at any time.