Rates of return on short-term U.S. government bonds are compensation for
A) both the level of risk and the delaying of consumption.
B) delaying consumption only.
C) the level of risk only.
D) factors other than risk and delaying consumption.

Question

Quizplus · Accepted Answer

Rates of return on short-term U.S. government bonds are compensation for delaying consumption only. This is because these bonds are considered to be very low risk, so investors are not demanding compensation for the level of risk associated with them. However, by investing in these bonds, investors are giving up the opportunity to use that money for consumption or other investment opportunities in the short-term, which is why they require some level of compensation in the form of interest payments.

Rates of Return on Short-Term U