Treasury bonds have provided a higher historical return than Treasury bills, which can be attributed to their:
A) greater default risk.
B) higher level of unique risk.
C) greater exposure to interest rate risk.
D)illiquidity.

Question

Quizplus · Accepted Answer

Treasury bonds have a longer maturity than Treasury bills, which exposes them to a greater risk of changes in interest rates. As interest rates rise, the value of a bond with a fixed interest rate will decrease, and vice versa if interest rates fall. This exposure to interest rate risk is why bonds have historically provided a higher return than bills. The other answer choices do not accurately explain why bonds have historically provided a higher return.

Treasury Bonds Have Provided a Higher Historical Return Than Treasury