Assume that you have a short investment horizon (less than one year). You are considering two investments: a one-year Treasury security and a 20-year Treasury security. Which of the two investments would you view as being more risky? Explain your answer 100 words or more
"why do corporations and governments (local, state, and federal) even issue debt to begin with? What are the advantages and disadvantages to issuing debt? For corporations, are there some tax advantages to issuing debt? Why would a company such as General Electric with a very strong balance sheet want to fund new projects with debt instead of just paying cash? Is it similar to an individual being able to "write-off" a certain amount of the interest expense as a tax deduction? What are the different classification and ratings of debt? Are we now experiencing a "credit" crisis now that even strong borrowers, both individuals and corporations, are having a hard time getting financing?© BrainMass Inc. brainmass.com October 25, 2018, 12:17 am ad1c9bdddf
Generally (there are cases when this is reversed), the shorter the time horizon the less risk and therefore, one usually earns less interest. There is a lot more uncertainty in what will greet us in 20 years than what will greet us in 1 year. We can rest assured that the US Goverment will be around and able to pay its Treasury bond holders in 12 months, but who can say if the same holds true in 20 years?
Corporations issue debt (sell bonds), because it is generally cheaper than borrowing and shareholders dislike immensely a corporation to sell more shares, because that dilutes their percent ownership in the company. Governments sell ...
Which of the two Treasury investments would you view as being more risky?
Yield on two and three year treasury securities
The real risk free rate of interest is 3%. Inflation is expected to be 2% this year and 4 percent during the next two years. Assume that the maturity risk premium is zero. What is the yield on a two year treasury security? What is the yield on a 3 year treasury security?View Full Posting Details