Question

(11) Explain (in few words) how financial analysts estimate the credit risk of a treasury bill?

Answer 1

I sin analyst estimate the Explain offew words) how financial Credit niska persny ul. Aas Ita Common for financial Analysh and Joueshment de deten mine the onedit Suiskom wreasury a tisk fru investroint. It is one at the same time mis leading thanks to the implicit backing of all Treasury Department obligahons by the Federal Reserve these is virtually no risk of principal loss on a T-Bond Most credit selahenships from montgape Loano bo comporte londa, cany default risk. The lendes asume the risk of the lower with met principal 24 Jalenest payment oblipoo Even though the nisk of default is almost non existant, Treasury bills investing risk is centered around Oppenhunily Lost, Het rak fluchumbny and Saising prices Ways financial analyst will estimate credit risk of a toreasury bill are as follows LIY If the Federal reserve creates to much new credit, the economy runs the risk of experiencing jaflation. This principal amaint on a normal I bond is only guaranteed in nominal a mount *27 Treasures also carry interest rate risk meaning when interent. rates rise, the market value of debt obligation tends to drop. This makes it difficult an me bond kiverton to liquidate without Josip on the investment. Audicamcal decisione, even Tod unwehmen, larry orpushik costs when an investor purchase a $1000 T bond, he loses the ability to spend that $1000 on other things Perhaps the investor would have been better off purchasing a different type of security with a higher return, on higine consumer goods that he ends up nating mare highly than the wheel on the bonds na bisher vretenim on board