Certified Management Accountant Practice Exam

What characterizes Treasury Bonds?

1. Maturity of less than five years

2. Maturity of five to ten years

3. Maturity of 10 years or longer

4. They have no set maturity

The correct answer is: Maturity of 10 years or longer

Treasury Bonds are characterized by their long-term maturity, specifically with maturities of 10 years or longer. This distinguishes them from other types of Treasury securities, such as Treasury Bills and Treasury Notes, which have shorter maturities. Treasury Bonds are issued by the federal government to finance government spending as well as to help manage the national debt. Investors are typically attracted to Treasury Bonds because they are considered one of the safest investments available due to being backed by the full faith and credit of the U.S. government. Additionally, they generally provide a fixed interest payment, known as the coupon, which is paid semiannually until maturity. The long duration until maturity allows investors to lock in these returns over an extended period, making them a favorable choice for those looking for stable, long-term investments. In contrast, the other options refer to shorter maturities that do not fit the definition of Treasury Bonds. Treasury Bills, for example, have maturities of one year or less, while Treasury Notes have maturities that range from two to ten years. Recognizing this key characteristic helps in understanding the range of U.S. Treasury securities available to investors.