Question

Consider a US treasury bill that matures in one year compared to a US treasury bond that matures in 10 years. Select one: a. The one year bond has more credit risk. b. Both bonds are risk free. c. The ten year bond has more credit risk. d. The ten year bond has more interest rate risk. e. The one year bond has more interest rate risk.

Answer 1

Answer: b. Both bonds are risk free.

Step-by-step explanation:

Both the Short term US Treasury bill and the longer term US Treasury bond are backed by the full faith and weight of the Government of United States of America.

The United States has never defaulted on a payment in the modern era. It is for this reason that US bonds are considered the epitome of safe and their rates are usually given as the risk free rate.

T-bills and T-Bonds along with T-Notes and Treasury Inflation-Protected Securities (TIPS) are considered to be the safest instruments in the world.