Question

If you were required to estimate the average return for one category of securities for the coming year, history tells us that you should have the greatest degree of confidence estimating which of the following?A) Long-term government bondsB) 3-month U.S. Treasury billsC) Small-company stocksD) Large-company stocks

Answer 1

3- month U.S treasury bills ( B )

Step-by-step explanation:

estimating the average return of a security depends on two factors: which is the time duration of the security and the level of certainty. the longer the time duration of the security the less certain it could be to estimate its return, this is because there would be a series of fluctuations in interest rate as the time is extended and this will be a challenge with estimating a long term government bond.

Estimating a 3-month U.S treasury bill is more certain because the fluctuations of the interest rate will be minimal and easier to predict. hence the greatest degree of confidence will be exhibited in predicting the average return on 3-month U.S treasury bill.

Answer 2

B) 3-month U.S. Treasury bills

Step-by-step explanation:

The certainty make the estimation of anyone confident. As certainty increase the estimated value becomes closer to the actual values. There will be a low variance between the actual and estimated value. Time period is also a factor of uncertainty as long it goes the uncertainty increases because no one knows about the future. we can only estimate based on the our experiences and past data. Long term Government bonds are considered more secure but uncertainty is very high in these bonds due to longer period of time. Company stock changes day to day, and it depend on the different Internal and external factors. Which might change in future. 3 month US treasury bills has a short maturity period, it's values are based on the current circumstances so, the estimating value of these bills will give you the highest confidence than all other options.