ECONOMICS
SAVING AND INVESTING
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Question
[CLICK ON ANY CHOICE TO KNOW THE RIGHT ANSWER]
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generally are a poor investment option due to high levels of government debt.
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tend to have a higher rate of return because the government needs the money.
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are backed by the U.S. government, so there is little or no default risk.
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are backed by the U.S. government, so they have a high default risk.
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Detailed explanation-1: -Financial analysts and the financial media often refer to U.S. Treasury bonds (T-bonds) as risk-free investments. And it’s true. The United States government has never defaulted on a debt or missed a payment on a debt.
Detailed explanation-2: -Treasury bonds are considered low-risk investments that are generally risk-free when held to maturity, since being backed fully by the U.S. government makes the odds of default extremely low. Relative to higher-risk securities, like stocks, Treasury bonds have lower returns.
Detailed explanation-3: -When you buy a U.S. savings bond, you lend money to the U.S. government. In turn, the government agrees to pay that much money back later-plus additional money (interest).
Detailed explanation-4: -Key Takeaways. There is virtually zero risk that you will lose principal by investing in long-term U.S. government bonds. The U.S. government has an excellent credit rating and repayment history, and is able to “print” money as necessary to service existing debt obligations.