NASAA Series 65, Uniform Investment Adviser Law ExaminationInvestment Vehicle CharacteristicsEasy
A client is looking for a short-term, highly liquid investment that offers safety of principal and is backed by the full faith and credit of the U.S. government. They need to access their funds within a year. Which of the following would be the most suitable recommendation?
- ATreasury Note
- BTreasury Bond
- CTreasury Inflation-Protected Security (TIPS)
- DTreasury Bill
Show answer & explanationAnswer & explanation
Correct answer: D. Treasury Bill
Treasury Bills are short-term government securities with maturities of one year or less, offering high liquidity and safety, making them ideal for the client's needs.
Why the other options are wrong
- A. Treasury Notes have maturities of 2 to 10 years, also too long for a short-term need.
- B. Treasury Bonds have maturities of 10 to 30 years, which is too long for a client needing funds within a year.
- C. TIPS are designed to protect against inflation and have maturities of 5, 10, or 30 years, not suitable for a short-term, highly liquid investment need.
Treasury Bill (T-Bill)
A short-term debt obligation issued by the U.S. Treasury with a maturity of one year or less, sold at a discount from face value.
- Maturity of one year or less
- Issued at a discount, matures at face value
- Backed by the full faith and credit of the U.S. government
Memory trick: T-Bills are the shortest BIlls from the Treasury.