Topic: Annuities and Loans

Treasury bills and Treasury notes are an investment security issued by the U.S. government. A Treasury bill matures within 1 year, and investors typically roll over the matured Treasury bill and purchase another Treasury bill the same day. Treasury notes have maturities of up to 10 years.

You are considering investing $50,000 in a Treasury bill that you will renew every 6 months or a Treasury note that you will hold until maturity. Your investment time frame is 9 years.

Current investment opportunity interest rates are 5% and are expected to increase to 7% in 6 months. Would you invest in the Treasury bill that you can roll over every 6 months and reinvest in, or leave your money in the Treasury note that will mature in 9 years? Discuss your reasoning.