Treasury bills are commonly viewed as risk-free assets because
A)their short-term nature makes their values insensitive to interest rate fluctuations.
B)the inflation uncertainty over their time to maturity is negligible.
C)their term to maturity is identical to most investors' desired holding periods.
D)Both A and B are true.
E)Both B and C are true.

Question

Quizplus · Accepted Answer

Treasury bills are short-term securities with a maturity of one year or less, making them relatively insensitive to interest rate fluctuations since the changes in interest rates are less in the short term. Additionally, the risk of inflation affecting their value over their short-term holding period is negligible. Therefore, both option A (their short-term nature makes their values insensitive to interest rate fluctuations) and B (the inflation uncertainty over their time to maturity is negligible) are true, making them commonly viewed as risk-free assets. On the other hand, option C may not always be true as investors may have different desired holding periods for different reasons.

Treasury Bills Are Commonly Viewed as Risk-Free Assets Because