Distinguish between U.S. Treasury Bills and Certificates of Deposits. Distinguish them generally and distinguish their levels...

Distinguish between U.S. Treasury Bills and Certificates of Deposits. Distinguish them generally and distinguish their levels of safety regarding investing and their growth potential. Also, explain their sources and why one is better than the other?

Expert Solution

US Treasury Bills are short-term (less than 1 year maturity) bonds issued by the US Treasury. CDs are money-market instruments (less than 1 year maturity) issued by banks and other financial institutions. Although both are of short-term (less than 1 year maturity), the distinguishing feature is the issuer. Treasury Bills are only issued by the Treasury, whereas CDs are issued by banks and other financial institutions.

As Treasury Bills are issued by the Treasury, they are considered virtually risk-free. The default risk is nearly zero. However, CD's are not default-risk free because they are issued by banks and other financial institutions.

Generally, higher risk means higher returns. Therefore, CDs generally earn higher yields than Treasury Bills because they have higher risk. Thus, CDs have higher growth potential, but also higher risk.

Which one is better depends on the investor's objectives. If the investor is willing to accept higher risk for higher returns, CDs are better. If not, Treasury Bills are better

jeff jeffy answered 2 years ago

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