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A new client owns a U.S. Treasury bond that matures in 26 years. She purchased the bond because she was told that Treasury bonds are

"A new client owns a U.S. Treasury bond that matures in 26 years. She purchased the bond because she was told that Treasury bonds are risk free. Which of the following statements about Treasury security risks should you communicate to your client? 1. Treasury securities do not have interest rate risk because their coupons are fixed at the time of issue. 2. Treasury securities with long maturities have purchasing power risk becausetheir coupon returns are fixed, even if interest rates rise substantially over the holding period. 3. Treasury securities do not have default risk because the federal government has the powers to tax and create money."

1 only.

2 only.

1 and 3.

2 and 3.

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