Question
The chapter opener noted that inmid-2016 you could earn an interest rate of0.25% by buying a3-month Treasury bill or an interest rate of2.6% by buying30-year
The chapter opener noted that inmid-2016 you could earn an interest rate of0.25% by buying a3-month Treasury bill or an interest rate of2.6% by buying30-year Treasury bond. How is the Treasury able to find buyers for3-month Treasury bills when investors could earn an interest rate 10 times as high by buying30-year Treasurybonds?
A. The markets for bonds of different maturities are separate or segmented.
B. Theinterest-carry-trade strategy drives the sale of3-month Treasury bills.
C. Treasury discounts the price of3-month Treasury bills to increase yield and demand.
D. Investors see bonds of different maturities as being perfect substitutes for each other.
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