Bonds issued by the U.S. government:

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Let's examine the statements about U.S. government bonds one by one, evaluating what is true or false based on common fixed-income knowledge.
Option 1: 'are considered to be free of interest rate risk.' This claim is not accurate. While U.S. government bonds (Treasuries) are backed by the full faith and credit of the U.S. government, they still carry interest rate risk; when interest rates rise, the market value of existing Treasuries typically falls, and vice versa. So they are not free of interest rate risk.
Option 2: 'are called "munis."' This is incorrect. Municipal bonds are issued by states, municipalities, or other local government entities and are not U.S. Treasury securities. Calling Treasuries munis mixes up two distinct bond categories with different issuers and tax treatments.
Option 3: 'generally have higher coupons than comparable bonds issued by a corporation.' This is misleading. U.S. Treasuries usually have lower coupon rates than many corporate bonds with similar maturities, due to their lower default risk. Therefore, Treasuries generally do not have higher coupons than comparable corporate bonds.
Option 4: 'pay interest that is exempt from federal income taxes.' This statement is false. Interest on U.S. Treasury securities is subject to federal income tax. It is exempt from state and local income taxes, but not from federal taxes, so the claim about federal tax exemption is incorrect.
Option 5: 'are considered to be free of default risk.' This is the closest to the conventional view. U.S. government bonds are widely regarded as having negligible default risk due to the government's ability to raise taxes and print money, making them effectively risk-free for most practical purposes. While no investment is completely without risk, Treasuries are typically described as default-risk-free in standard finance discussions.

BUSFIN 3220 AU2025 (2110) Exam 2 - Requires Respondus LockDown Browser

Bonds issued by the U.S. government:

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BUSFIN 3220 AU2025 (2110) Exam 2 - Requires Respondus LockDown Browser

Bonds issued by the U.S. government:

View Explanation

Log in for full answers

Similar Questions

…………是一种短期金融担保，是政府在到期日向债券持有人支付定期票息和面值的承诺。

Part 1Match​ (by number) each capital market instrument with its​ description:Part 2[table] Capital Market Instrument | Government Security | enter your response here [/table]

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Part 1Match (by number) each capital market instrument with its description:Part 2[table] Capital Market Instrument | Government Security | enter your response here [/table]