How did you get the benefit of interest by investing in securities
Describe your situation
In summary, the Treasury is the largest and most active borrower in the financial markets. The Treasury is continuously in the process of borrowing and refinancing. Its financial actions are tremendous in contrast with all other forms of financing, including those of the largest business corporations. Yet, the financial system of the nation is well adapted to accommodate its needs smoothly. Indeed, the very existence of a public debt of this magnitude is predicated on the existence of a highly refined monetary and credit system. DISCUSSION QUESTION 2 Do you believe that foreign and international investors will continue to hold large por tions of the U.S. national debt in the future? I 8.4 Term or Maturity Structure of Interest Rates The term structure of interest rates indicates the relationship between interest rates lationship betweestre or yields and the maturity of comparable quality debt instruments. This relationship is typically depicted through the graphic presentation of a yield curre. A properly com structed yield curve must first reflect securities or similar default risk. Second, the yield curve must represent a particular point in time, and the interest rates should reflect yield for the remaining time to maturity. That is, the yields should not only include stated interest rates but also consider that instruments and securities could be selling above or below their redemption values, (The process for calculating yields to maturity is shown in Chapter 9 Third, the yield curve must show yields on a mumber of securities with differing length time to maturity o BI The factors that influence the market interest rate are discussed throughout the remainder of this chapter, beginning with the concept of a risk-free interest rate and a discussion of why U.S. Treasury securities are used as the best estimate of the risk-free rate. Other sections focus on the term or maturity structure of interest rates, inflation expectations and associated premi- ums, and default risk and liquidity premium considerations. DISCUSSION QUESTION 1 How have you benefitted from the historically low interest rates in the United States in recent years? 8.3 Default Risk-Free Securities: U.S. Treasury Debt Instruments U.S. Treasury debt instruments or securities are typically viewed as being free from default. Even with the large national debt, the U.S. government is not likely to renege on its obligations to pay interest and repay principal at maturity on its debt securities. While the probability of a U.S. government default is not absolutely zero, most analysts view default as being sery unlikely. Thus, we view U.S. Treasury securities as being default risk free Treasury debt securities that can be traded in the marketplace, the majority of all out standing U.S. debt, are said to be marketable securities. These securities are virtually no for illiquidity, Short-term government securities do not have a In contrast loen er
