For Treasury Bills, what type of interest payment do they provide?
Understand the Problem
The question is asking about the nature of interest payments provided by Treasury Bills. It is looking for the correct classification of Treasury Bills in terms of how interest is paid to investors.
Answer
No periodic payments; discount to face value, interest at maturity.
Treasury bills do not provide periodic interest payments. Instead, they are sold at a discount to their face value, and the interest is earned by receiving the full face value at maturity, which is higher than the discounted purchase price.
Answer for screen readers
Treasury bills do not provide periodic interest payments. Instead, they are sold at a discount to their face value, and the interest is earned by receiving the full face value at maturity, which is higher than the discounted purchase price.
More Information
Treasury bills are typically sold in short durations, such as 4 weeks, 8 weeks, 13 weeks, 26 weeks, and 52 weeks. Their discounted nature means you initially pay less than their nominal value and receive the full nominal value at maturity.
Tips
A common mistake is confusing T-bills with Treasury bonds or notes, which pay periodic interest.
Sources
- Treasury Bills - FAQs - TreasuryDirect - treasurydirect.gov
- Treasury Bills (T-Bills): What They Are and How To Invest - Investopedia - investopedia.com
- Treasury Bills - TreasuryDirect - treasurydirect.gov
