When an investor purchases a risk free asset such as a Treasury bill, it is often referred to as ______ because such an investment involves a loan by the investor to the federal government.

Question

Quizplus · Accepted Answer

A Treasury bill is considered a risk free asset because it is backed by the full faith and credit of the federal government, which means there is virtually no risk of default. When an investor purchases a Treasury bill, they are essentially lending money to the federal government and receiving interest in return. Hence, it can be referred to as risk free lending. Option B is incorrect because the investor is not borrowing, but rather lending money. Option C and D are incorrect because they do not accurately describe the nature of the investment.

When an Investor Purchases a Risk Free Asset Such as a Treasury