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Question

Difficulty: EasyGovernment, Municipal, and Corporate Bonds

Match each type of U.S. Treasury security with its primary defining structural characteristic.

  • Treasury Bills (T-bills)Issued at a discount with short-term maturities of one year or less, paying no periodic coupon interest.
  • Treasury Notes (T-notes)Direct Treasury debt with intermediate maturities of 2 to 10 years that pays semi-annual coupon interest.
  • Treasury Inflation-Protected Securities (TIPS)Fixed-income securities whose principal value adjusts semi-annually based on changes in the Consumer Price Index (CPI).

Answer

Treasury Bills match with short-term discount securities maturing in one year or less; Treasury Notes match with intermediate obligations maturing in 2 to 10 years paying semi-annual interest; TIPS match with securities whose principal adjusts based on the Consumer Price Index.
Treasury Bills are short-term discount paper maturing in 1 year or less without regular coupon payments. Treasury Notes carry intermediate maturities of 2 to 10 years paying fixed semi-annual coupon interest. TIPS feature a principal value that adjusts semi-annually with inflation measured by the CPI.

Step-by-Step Solution

1
Identify the defining features of Treasury Bills.
T-bills are money market instruments issued at a discount, maturing in 1 year or less (4, 8, 13, 17, 26, or 52 weeks), without explicit coupon payments.
Differentiates short-term discount Treasury paper from intermediate/long-term coupon-bearing Treasuries.
2
Identify the defining features of Treasury Notes.
T-notes are intermediate-term Treasury debt securities issued with stated maturities from 2 to 10 years that pay semi-annual coupon interest.
Establishes the intermediate maturity spectrum and coupon structure characteristic of T-notes.
3
Identify the defining features of Treasury Inflation-Protected Securities (TIPS).
TIPS feature a fixed coupon rate but a variable principal amount that adjusts semi-annually according to changes in the Consumer Price Index (CPI).
Distinguishes inflation-indexed Treasury debt from nominal Treasuries whose principal remains fixed at par.

Key Concept

Defining characteristics and structural differences of U.S. Treasury securities
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Topics

Government, Municipal, and Corporate Bonds

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