Treasury bonds have provided a higher historical return than Treasury bills,which can be attributed to their:
A) greater default risk.
B) higher level of specific risk.
C) greater exposure to interest rate risk.
D) illiquidity.

Question

Quizplus · Accepted Answer

Treasury bonds have longer maturities compared to Treasury bills, which makes them more exposed to interest rate risk. As interest rates fluctuate, the value of the bond changes, resulting in higher returns for investors. However, this also means that the bond prices can fall if interest rates rise, resulting in higher risk. The other options are not valid explanations as Treasury bonds have lower default risk, lower specific risk, and higher liquidity compared to Treasury bills.

Treasury Bonds Have Provided a Higher Historical Return Than Treasury